Salary and dividend review for two security-company owners

The situation

They'd accepted that dividends were the efficient way to pay themselves, because that's what they'd been told and it kept personal tax low. What they hadn't been told is that dividends create no RRSP room, so both partners had years of retained earnings piling up in the company and almost nothing in a retirement account. Elise reviewed the corporate and personal tax bills together. The case reports an $18,000 decrease in corporate tax and an $11,000 increase in personal tax, for a $7,000 net reduction.

What the advisor describes

• $7,000 less tax every year, a 7% cut across the corporation and both partners combined.
• $13,500 more RRSP room each, created by moving income from dividends to T4 salary.
• Net pay at home stayed $84,500, so nothing changed in their day-to-day spending.
• $404,000 of projected cash value in two corporate PAR policies by year five.

Where it left them

They pay $93,000 in tax instead of $100,000, and they take home exactly what they did before. Both partners now have $20,000 a year going into an RRSP that didn't exist last year, plus $10,000 each into a TFSA. The corporation still holds $35,000 of reachable cash. Elise's model puts the compounded difference at about $750,000 more by retirement.

Elise Keller

Stewart Fisher Financial

Ontario · Preserve Wealth Group network