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John Wilson, owner of ABC Accountants, makes $500,000 after expenses, but before tax, in his incorporated practice. He is married to Mary who earns income only from the business.
In the first scenario, Mary receives a salary of $40,000 per year and John $300,000 (before taxes, RRSP deductions, and CPP premiums). The table shows the net result for 2010.*
In the second scenario, John and Mary each receive $120,000 in dividends; savings are left in the company. As a result, total taxes are lower and savings higher.
SCENARIO ONE
|
ABC Inc. |
John |
Mary |
|
|
Gross Income |
$160,000 |
$300,000 |
$40,000 |
|
Corporate Tax |
$21,600 |
||
|
Dividend |
|||
|
Personal Tax |
$101,986 |
$3,946 |
|
|
CPP Premiums |
$4,326 |
$3,614 |
|
|
RRSP Contribution |
$22,000 |
$7,200 |
|
|
Spendable Income |
$171,688 |
$25,240 |
|
|
Corporate Savings |
$138,400 |
||
|
Total Taxes Corporate and Personal + CPP |
$135,472 |
27.09% |
|
|
Total Savings |
$167,600 |
33.52% |
|
|
Spendable Income |
$196,928 |
39.39% |
|
|
*Based on 2010 tax rates and CPP premiums. The balance of $160,000 earned is assumed to be retained in the company and tax paid at the small business rate of 13.5% in 2010. |
SCENARIO TWO
|
ABC Inc. |
John |
Mary |
|
|
Gross Income |
$500,000 |
||
|
Corporate Tax |
$67,500 |
||
|
Dividend |
$120,000 |
$120,000 |
|
|
Personal Tax |
$20,342 |
$20,342 |
|
|
CPP Premiums |
NONE |
NONE |
|
|
RRSP Contribution |
NONE |
NONE |
|
|
Spendable Income |
$99,658 |
$99,658 |
|
|
Corporate Savings |
$192,500 |
||
|
Total Taxes Corporate and Personal + CPP |
$108,184 |
21.64% |
|
|
Total Savings |
$192,500 |
38.50% |
|
|
Spendable Income |
$199,316 |
39.86% |
|
|
Source: Nicola Wealth Management, Vancouver |