Yves asked:

I own a company and have been taking out a salary for the last couple of years. I'm starting to look around to see if it would be beneficial for me to go from salary to dividends.

I'm looking to take approximately 60,000 per year (and leave the rest in the company). With the current market situation, I'm not looking to invest in RRSP's and the CPP is not of major importance for me.

Not sure if this is relevant but my wife is salaried and make approximately 65,000 per year. We also have two children and we pay approximately 8,000 in daycare per year.

John R Mott answered:

The answer to your question depends on multiple inter-dependent factors, including your province of residency, the nature of the corporate income and the applicable corporate tax rates.

Generally, the difference between the overall tax cost of a dividend strategy and a salary strategy is marginal, because that is the intention of Canadian tax policy.

You require earned income (i.e. salary) of at least $12,000, in order to deduct your childcare costs of $8,000, assuming you are the spouse with the lower income. If you choose to exclude RRSP and CPP considerations from the analysis, then dividends above that level will leave you with slightly more money in your pocket in most circumstances.

If you require a more precise analysis, then you would have to engage a tax accountant to crunch your specific numbers.

About the author

John Mott is a chartered accountant and tax specialist with a private practice in mid-town Toronto. He provides tax, accounting and advisory services to individuals and small businesses. He may be visited online at: johnmott.com.

 
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