Personal Finance

Salary from corporation

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  • Jun 20th, 2012 12:45 am
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Newbie
Jun 17, 2012
7 posts
VANCOUVER

Salary from corporation

Hey guys, I'm a long term lurker and finally decided to post for some help of my own.

I was wondering what would be the best way to pay myself in this unique situation. I will be talking to my accountant and lawyer next week but want to get a grasp on things before hand.

My business partner and I will be opening up a new business come September where his holding company owns 50% of the shares and my holding company own the other 50% of shares in the operating company. All profits will be split evenly however I will be getting paid an extra $80,000 a year (salary not dividends) to work full time and handle all day-to-day operations. If we don't make enough money in the 1st year then I will be owed my salary and not paid the full amount (only enough to live off).

I'm concerned about the tax implications of this arrangements because if we don't make money from Sept-December I will forfeit $27,000 of salary for 2012 and then will have to pay tax on $107,000 worth of salary in 2013. Is there any way around this?? Things can get even more messy if we don't make money for a year or two and then once I finally pay myself I will be paying tax on a salary of $160,000+ for that year

Thank You
7 replies
Jr. Member
May 2, 2012
192 posts
44 upvotes
What if you took the money that the company can't afford to pay you in preferred non voting shares that will issue a dividend to you later and then expire or lay dormant?

Just an idea, clearly does not constitute accounting advice.
Sr. Member
Jul 18, 2009
679 posts
103 upvotes
Do you have to take the 80k personally as salary, or could it be a payment for services from the business to your personal corp? Then you could work out whatever mix of salary and dividend is best for your situation and pay that from your corp. Gives you a lot more flexability in regards to tax planning.

Note - the above is a suggestion to discuss with your lawyer and accountant. The author has no tax law experience or knowledge.
Deal Guru
User avatar
Nov 18, 2005
11955 posts
3699 upvotes
Kingston
You could be paid with a promissory note or loan the money back to that company. That would allow you to spread the income evenly BUT it means you have to pay taxes on the $80,000 even though you didn't receive the cash.
Deal Addict
User avatar
Nov 14, 2006
2569 posts
1818 upvotes
Waterloo
starchyk wrote: Do you have to take the 80k personally as salary, or could it be a payment for services from the business to your personal corp? Then you could work out whatever mix of salary and dividend is best for your situation and pay that from your corp. Gives you a lot more flexability in regards to tax planning.

Note - the above is a suggestion to discuss with your lawyer and accountant. The author has no tax law experience or knowledge.
Watch out for the personal services business rules - you don't want your corporation classified as a PSB:
http://www.bdo.ca/library/publications/ ... 04-03a.cfm
JWL wrote: You could be paid with a promissory note or loan the money back to that company. That would allow you to spread the income evenly BUT it means you have to pay taxes on the $80,000 even though you didn't receive the cash.
A promissory note to the OP could potentially cause shareholder loan issues under 15(2) of the Income Tax Act since OP is a specified employee...



OP, you should talk to an accountant with your full fact scenario and they should be able to help you to find a suitable compensation arrangement. Without the full facts of your situation, any solutions that are thrown out here are pure speculation and could trigger adverse or unintended tax consequences.

If you want to get a good grasp of your question at hand before talking to your accountant, I would suggest you google for search terms such as:
"Salary vs dividends"
"Salary Tax Integration"
"Owner-Manager Remuneration Strategies"
and read up on the concept of a "Personal Services Business"
as well as understanding the concept of using your holding company as a tax deferral mechanism when the operating company pays out dividends (if you don't already).
Congratulations!
Today is YOUR day.
You're off to great places!
You're off and away!
Newbie
Jun 17, 2012
7 posts
VANCOUVER
Great thanks for the ideas everyone! I will take those to my accountant and hopefully find a workable solution. I'm thinking the best way to work around this would be just to pull out the extra money into my holding company and either invest it using the holding company or pay it out as salary to a family member making less than me.
Deal Addict
Sep 30, 2008
1277 posts
311 upvotes
nucksfan1 wrote: pay it out as salary to a family member making less than me.
You cannot pay salary to family members unless they are employees and work for the company, i.e., they need actually work with proper qualifications and abilities. However, u may make them as preferred shareholders of your holding company and pay dividends to them.

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