Small Things Can Matter

Most private corporation shareholders can adjust to improve security and make tax choices to their advantage.

Tax things

The dividend versus dividend choice is one to explore. Be sure to consider all the salary costs. Employer side of Canada Pension, Ontario Health tax, and the income tax variance after passing tax paid corporate income to the shareholders.

If you and/or your family control the corporation, Employment Insurance (EI) is not required. You can recover a few prior years’ contributions if you have inadvertently paid.

Think about income splitting. Reasonable salaries to family members are permitted.

Other things

  1. Many corporations owe shareholders or holding companies substantial amounts. In most cases, they are undocumented. Few have a requirement to pay interest. If there is interest, it just causes a different form of income. So no significant gain. There are other factors to consider.
  2. If the corporation, by bad luck or whatever, goes bankrupt, the loans will be treated as those of an unsecured creditor. The more secure approach is to document the loan formally. Then take security as a General Security Agreement and register under the Personal Property Security Act. That will put you ahead of all unsecured creditors.
  3. Now consider the interest rate on that loan. If your total payroll is more than minimal, you will owe Ontario health tax at 1.95% of any salary. Suppose the corporation owes you $1,000,000, and 7% would be a reasonable interest rate. That’s $70,000. If you took the interest and reduced your salary by the same amount, you would save $1,365. Tiny, but so easy.
  4. Use a holding company and move or acquire permanent assets there. Clear OPCO’s annual earnings each year. Retained earnings change to a loan and become secure.
  5. Hold adequate insurance on automobiles and other assets. Pay great attention to situations where liability exists. Fires have limited costs. Liability is not so limited. If an employee driving a company truck carelessly hits a minivan full of brain surgeons on their way to a convention, you can easily exceed your insurance limits. Carry director’s liability insurance, too. Consider environmental degradation risk.
  6. Protect your retirement assets with an individual pension plan or RRSPs in a segregated fund.

The takeaway

Most private companies can do better, and it won’t get done unless the shareholders pay attention.

Accounting firms could help with a checklist.

I build strategic, fact-based estate and income plans. The plans identify alternate ways to achieve spending and estate distribution goals. In the past, I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning. I have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, and Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email at

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