March 6th, 2013
admin
What is the allowable child care deduction for 2012?
CRA defines the overall maximum amount that a taxpayer can deduct for a tax year for each eligible child. The maximum amount to be deducted is dependent on the child’s age, physical and mental condition.
The annual child care expense allowable deduction is:
• $7,000 for each child under 7 years of age at the end of the year;
• $4,000 for each child over 6 years of age at the end of the year and under 16 years of age at any time during the year; or
• $4,000 for each child over 15 years of age throughout the year who has a physical or mental infirmity and is dependent on the taxpayer, the taxpayer’s spouse or common-law partner.
March 3rd, 2013
admin
If you own a corporation, as a shareholder, you have the option of paying yourself a salary or dividend.
There is no simple answer to this question, it depends on a number of factors;
The shareholder/owner
- income level
- cash flow requirements
- RRSP and TFSA contribution room
- age
The Company
- forecasted income for the year
- any other shareholders
Advantages/Disadvantages of paying salary
Advantage:
- contribution to RRSP (income shelter)
- contribution to CPP
- income splitting with family members
Disadvantage:
- taxable at 100%. Dividends are taxed at a lower rate.
- business owner pays both employer and employee portions of CPP
- unable to carry back a business loss in future years
Advantages/Disadvantages of paying dividends
Advantages:
- dividends are taxed at a lower rate
- privately controlled Canadian corporation pays a much lower tax on the first $500,000 income (small business limit)
- save money on CPP contribution (about 10%) on both employer and employee share
Disadvantages:
- no CPP contribution towards a retirement plan
- no RRSP contribution room
- no personal tax deductions such as child care expenses (which is related to earned income)
The solution is usually a “Mix of Salary and Dividend” to avail of the best tax advantage. The decision is best made with the professional advice of an accountant or financial planner who reviews your personal tax situation.
-article contributed by Accounting Troubleshooters, North Vancouver
