Dividends-only strategy often beats bonuses
Canada's incorporated small-business owners should skip handing out a traditional year-end bonus and pay themselves dividends from 2011 income, a new report from CIBC argues.
Bye-bye Bonus! Why small business owners may prefer dividends over a bonus, by tax and estate planning expert Jamie Golombek, is a fresh look at the theory of integration, which examines corporate income tax rates and personal tax rates on dividends. Mr. Golombek found that a dividends-only strategy often beats bonuses as the preferred method of remuneration for owners, as long as the money is not needed in the near term.
"The theory of integration," reads a press release, "implies that an individual should pay the same amount of total tax on income, whether earned personally or earned through a corporation, taxed at the corporate level and then paid out as a dividend to be taxed in the shareholder's hands."
But as Mr. Golombek points out, integration is rarely achieved due to varying provincial tax rates. "The absence of perfect integration means that in most provinces, an absolute tax savings can be realized by having income that is eligible for the small business deduction (SBD) taxed inside the corporation at the small business tax rate and then paid out as a dividend, rather than having the corporation pay a tax-deductible salary or bonus to be taxed in the hands of the individual."
The report makes two other conclusions:
- An even greater benefit can be achieved by reinvesting deduction income within the company, allowing for a significant tax deferral, although the business owner must pay tax when dividends are distributed.
- It may be advisable for small businesses to have active business income taxed within the corporation and then retain the funds for reinvestment purposes for a valuable tax deferral advantage. Again, taxes must be paid upon future dividend distributions.
Food for thought as we march ever closer to the holiday season. Yes, it's that time of year already.
Do we need 78 federal programs and 128 at the provincial level?
On September 29, 2011 directors, senior analysts and departmental advisers convened at the British High Commission, joined by experts and non-governmental thought leaders, to spark a dialogue about enhancing understanding and support for small businesses, entrepreneurship and innovation. The day-long session was moderated by Paul Ledwell, executive vice-president of the Public Policy Forum, and a subsequent report points out that the system of support from Canada's federal government is extensive but too complex and difficult for small businesses and individuals to navigate. The country's innovation system is mired in “D” rankings in domestic and international assessments. "Policy across the federal departments is ill-aligned to provide efficient, responsive support to small businesses, particularly the elite cadre of small businesses that have innovation as their core function." Most crucial is the fact that "inattention to properly aligning resources which support commercialization may be the Achilles heel of government programming." The Public Policy Forum is an independent, not-for-profit organization dedicated to improving the quality of government in Canada through enhanced dialogue among the public, private and voluntary sectors. The Forum’s members are drawn from business, federal, provincial and territorial governments, the voluntary sector and organized labour.
The scariest jobs in America
What makes a job frightening? With Halloween approaching, careerbuilder.com polled American workers on what they consider the scariest professions, and they choose careers ranging from the death-defying (firefighter) to the potentially humiliating (stand-up comedian). Here's the Top 10:
- Bomb Squad Technician
- High Rise Window Washer
- Armed Forces
- Police Officer
- Alaskan Crab Fishing
- High School Teacher
- Cemetery Worker
The survey was conducted by Harris Interactive from Aug. 16 to Sept. 8, and had about 4,300 respondents.
EVENTS AND KEY DATES
Innovation roundtables being held across Canada
Leading Innovation is a Public Policy Forum initiative seeking to better understand and advance the foundation elements needed to strengthen Canada's innovation system. The need to advance cross-sector collaboration, specifically in cities and regional innovation systems, is being addressed through a series of solutions-oriented roundtables in leading and emerging innovation centres across Canada. The five regional roundtables, with 20 participants each, are focused on fostering and developing local innovation systems, and the necessary policy frameworks to lead innovation at a local level. They will be held through November, in Saskatoon, St. John's, Montreal, Calgary and Ontario's York Region. Click here for more details and a list of dates the roundtables will be held in each city or region.
Opportunities and challenges in India
Doing Business in India, a case study discussion led by Richard Ivey School of Business professor Ariff Kachra, will walk participants through a traditional discussion. The open event takes place in Ottawa at the KPMG Corporate Classroom on Nov. 3, beginning with a reception at 4:30 p.m., with a panel start at 5:15 pm. The Global Ivey Day afternoon will provide a platform to outline the business culture, opportunities and challenges in India, including a special focus on the booming educational sector. Cost is $15, with proceeds directed to The Ottawa Mission.
EDITOR'S PICKS FROM REPORT ON SMALL BUSINESS
Ride ride ride, let it ride
Chariot Carriers, was incorporated in 1992, with the first production run the following year. A year and a half after the company was incorporated, Dan Britton brought in his older brother Chris to help oversee manufacturing. Together, they would build Chariot from the ground up. Mr. Britton's goal when he started was to sell 10,000 carriers in one year – a target he reached in less than four years. Today, Calgary-based Chariot is the market leader in multiuse child transportation system products in North America and in a number of European markets, selling more than 50,000 carriers every year to more than 25 countries. When an outdoor-products behemoth came calling, in late 2010, offering to buy his company, Mr. Britton had to think long and hard. Perhaps now was the time to hand over the reins and let somebody else take Chariot Carriers to the next level?
FROM THE ROSB ARCHIVES
Six reasons to pay yourself a dividend
It can be tempting to reinvest all of your profits to help build a business to be sold, or to avoid the feeling of double taxation by keeping your cash in your company. But in March, columnist John Warrillow made the case for why owners should consider paying themselves a healthy dividend each year – just in case. Assuming your accountant thinks it makes sense given your personal tax situation, he said, here are six reasons to pay yourself a dividend now.
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