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  • Aug 30th, 2014 9:53 pm
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[OP]
Member
Dec 9, 2007
296 posts
56 upvotes
Montreal

Paying my mother: best way

Hi
My mum is 65y old, has 0$ income (really 0). I want to make here do my admin (incorporated), i am the only shareholder in the company and no employee.

What s the most efficient way regarding taxes : employee or shareholder with dividend payment? And why?

Thank s in advance
12 replies
Member
Apr 8, 2009
315 posts
69 upvotes
that's odd,
65 and has no income,
is she new to Canada___living in Canada less than 10 years?

for people who are 65 and older, Canadian federal government gives each one
roughly $1,000 per month, more if he/she is a widow/widower.

--> one must apply fot it though, at a Canadian employment centre.


.
Sr. Member
User avatar
Nov 24, 2009
620 posts
77 upvotes
Fergus, ON
If she's not a shareholder you can't pay her a dividend. Unless your planning on restructuring.
If it weren't for electricity, we would all be surfing RFD by candlelight.
[OP]
Member
Dec 9, 2007
296 posts
56 upvotes
Montreal
al_the_great wrote:
Aug 29th, 2014 7:28 am
that's odd,
65 and has no income,
is she new to Canada___living in Canada less than 10 years?

for people who are 65 and older, Canadian federal government gives each one
roughly $1,000 per month, more if he/she is a widow/widower.


.
Yes new canadian resident for 2 years now
[OP]
Member
Dec 9, 2007
296 posts
56 upvotes
Montreal
loghed wrote:
Aug 29th, 2014 7:29 am
If she's not a shareholder you can't pay her a dividend. Unless your planning on restructuring.
I can make here a shareholder!!!
Deal Addict
Feb 25, 2007
1188 posts
621 upvotes
Ottawa
Not all of this may apply in your situation (2 yrs in Canada, no OAS/GIS) but will to others

You can pay parents dividends (if they are shareholders). This is easy, and if their income is not too high their effective tax rate on dividents in particular will be extremely low. However, this is a bad idea if your elderly relatives receive GIS. Due to the dividend gross up, every dollar of dividends you pay them will claw back their GIS by 70 cents! With that sort of penalty, you'd do better to gift them your after-tax earnings.

Putting your parents on payroll carries some hassles (and may or may not require you to pay CPP/EI on their behalf - does someone know?). However, the first $3,500 of employment income they receive will not affect their GIS. Beyond that, the clawback per dollar is 50 cents, so again better to gift them after-tax dividends or income you pay yourself.
[OP]
Member
Dec 9, 2007
296 posts
56 upvotes
Montreal
She doesn t receive any gis or any other income.

houska wrote:
Aug 29th, 2014 10:04 pm
Not all of this may apply in your situation (2 yrs in Canada, no OAS/GIS) but will to others

You can pay parents dividends (if they are shareholders). This is easy, and if their income is not too high their effective tax rate on dividents in particular will be extremely low. However, this is a bad idea if your elderly relatives receive GIS. Due to the dividend gross up, every dollar of dividends you pay them will claw back their GIS by 70 cents! With that sort of penalty, you'd do better to gift them your after-tax earnings.

Putting your parents on payroll carries some hassles (and may or may not require you to pay CPP/EI on their behalf - does someone know?). However, the first $3,500 of employment income they receive will not affect their GIS. Beyond that, the clawback per dollar is 50 cents, so again better to gift them after-tax dividends or income you pay yourself.
Deal Addict
User avatar
Nov 17, 2004
2323 posts
644 upvotes
Put her on payroll but make sure that she at least touches your paperwork or makes some calls every once in a while so that if the CRA audit, you can show that she actually does something for the company.

Then pay her as admin and keep her in the lowest tax bracket, or even within her exemption limit. Just make sure that the amount is reasonable for her "position".

Since there are no clawback a to consider- she gets taxed lightly, and you get to write off her income. The other possibility would be paying her a dividend after restructuring and with no income, she should be able to receive a decent amount of dividend income without being taxed. It would then depend on if income taxes on her salary would be more than small business taxes on the amount before dividends.

And yes, I believe he would still have to pay for CPP, but no EI since it's a "family" business, and he may also still have to pay WSIB as well...can anybody confirm that?
Deal Fanatic
User avatar
Dec 3, 2004
5081 posts
3451 upvotes
Vancouver
I'd pay her dividends. Paying her CPP kills the deal. The CPP cost will be something like 9%.
Deal Addict
Feb 25, 2007
1188 posts
621 upvotes
Ottawa
adamtheman wrote:
Aug 30th, 2014 1:38 pm
I'd pay her dividends. Paying her CPP kills the deal. The CPP cost will be something like 9%.
...but dividends come out of post-tax corporate profits. So still comes out ahead with mom on payroll (9.9% CPP) vs dividends (after tax money in the company, taxed at 15.5% if a CCPC in Ontario).
In the OP's situation, in one case he needs to set up payroll (he has no employees now), in the other he needs to restructure the corp to create another share class. Both are an admin hassle, and which one is more of a hassle (or provides additional flexibility he can use later on) may be as important a factor as the tax difference - depending on the amount in question, of course.

One other point - the grossing up of dividends changes the tax rate steps his mom will need to pay. If the amount is below $10k or so per year (going by memory), no tax payable by mom either way. If the amount is ~$10-16k, there will be some minimal tax on dividends due the the gross up, but income would not be taxable yet. Over $16k, dividends taxed less than income.
Deal Fanatic
Aug 21, 2007
5181 posts
309 upvotes
Markham
make her a shareholder...with no other income, she can get about 25k fully tax free (no personal tax at all) while yes the corp also does not get a deduction, but the combined rate will still be the corp rate of 15% which is pretty good
[OP]
Member
Dec 9, 2007
296 posts
56 upvotes
Montreal
Thank s everyone.
My goal was to pay here 24k a year.
In quebec, the corporate tax is 19%.
I am wondering if someone can tell what would the % of taxes and deductions she will pay if it s a salary, i mean all the taxes she will pay, plus cpp, ei and all the employer contributions like cpp, ei considering she is over 65 years old.
Thank s again
Deal Fanatic
Aug 21, 2007
5181 posts
309 upvotes
Markham
cpp (assuming that qpp is same, but not sure) is 4.95% off her pay, and your copany has to match that 4.95%
ei - 1.88%, and your cpmpany has to match times 1.4 or 2.63%
fed tax im guessing owuld be around 20% (again, not famiar with quebec rates)

so looking at about 25%ish deductions, plus you have to match at another 7.5%.

in ontario (Rest of Canada) after 65, CPP is not mandatory, and you can elect out of it...nit sure how it is in quebec if different at all

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