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Email this3:18 am
August 7, 2024
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I would like some general advice
- I am a 40 y.o with a partner and 4 kids
- I am the sole share holder of a corporation (engineering firm) with 3 employees.
- This corporation earns approx. 300k in gross revenue
- After all expenses, the business will net about 150k into the account at the year end. The business may grow in gross revenue 5-10% a year.
- I pay myself 60k salary and approx 40k - 80k in dividends each year depending on how much I need for cost of living.
Personally I hold:
- 35K in RRSP
- 0 dollars in TFSA (I have 95K in TFSA Room)
Questions:
- What do I do with the Cash in the Business account to earn some interest?
- I was told that if I increase my salary + dividend too much the taxes incurred would raise and might not be a best tax efficient move.
- Can the business write off RRSP contributions to share holders using pre-tax money?
- Can the business write off TFSA contributions to share holders using pre-tax money?
- What is the best way to fund my RRSP and TFSA
After 40, I started to get very serious about finances but also worried about retirement. My goal would be to retire at 60.
What would you suggest I do?
9:16 am
April 6, 2013
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Torontoeng said
- What do I do with the Cash in the Business account to earn some interest?
Some ideas were given in discussions Advice for Cash in Business Account and Cash Just Sitting.
9:22 am
January 12, 2019
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.
Torontoeng . . .
Coming here with such questions will surely get you some answers ... some Good, and some Not-So-Good. 
Given what's at steak, I'd suggest you step away from internet forums like this, and go talk to a certified, experienced tax accountant.
My Two Nickels,
- Dean
" Live Long, Healthy ... And Prosper! "
11:00 am
February 16, 2013
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Torontoeng said
- What do I do with the Cash in the Business account to earn some interest?
When I had a corporation, I also arranged to have a discount brokerage account for the corporation through my bank, which was BMO at the time. I then invested in ISAs to earn interest. Be aware that interest income in your corporate account is taxed much higher than the business income. With respect to paying yourself higher salary or dividends, I suggest that you do some "what if" calculations using the tax software of choice for your personal income taxes. I use StudioTax - all free until you want to submit your taxes to CRA. Dividend income (even if non-eligible) is still usually better than salary. You can also do what-if scenarios on taxtips.ca. I second Dean's suggestion to speak with a good accountant. I have never heard of funding a shareholder's TFSA or RRSP. Funding an employee's RRSP is something different but is really contributing to their pension.
1:55 pm
April 27, 2017
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- A lot of these are complex questions. I assume you have an accountant. Needs to be a good one; many are not - not for this type of questions.
- A really good source of info: https://www.looniedoctor.ca/
Personally, I aim to diversify retirement savings. Having everything in your Corp is a high risk, high overall tax strategy. Looking at your situation, paying yourself 50% in dividends results in a smaller RRSP room and less CPP. You need to pay dividends to release RDTOH, but you appear to be going way beyond that. Thats the type of strategy often recommended by accountants who look at this years tax rather than your overall lifetime strategy.
So, I would pay enough salary to max TFSA contributions and increase RRSP contributions. Pensionable earnings are 73K, so that would be the minimum in my book, but you get little RRSP room. So, I would only pay myself enough in dividends to release RDTOH and use salary for the rest. It does mean less deferral is a better strategy. Think about feds changing the rules for cap gains; its a massive detriment for self-employed corp owners without RSSPs and TFSAs. And thats apart from people with large accumulated corp accounts being penalized based on previous changes.
You can’t “write off” Rrsp and TFSA contributions. You can have your corp pay you a salary without subtracting personal taxes and then put the gross amount into your RRSP. You still need to pay CPP contributions. All this means is that you are bringing forward RRSP “tax refund” by never paying it in the first place. Obviously does not work for TFSA contributions.
Do read Loonie Doctor’s blog and listen to his podcast. It will give you a pretty good idea which way to go.
1:58 pm
April 27, 2017
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And re your cash question, have a look here: https://www.highinterestsavings.ca/forum/small-business-accounts/advice-for-cash-in-business-account/
Please write your comments in the forum.