Complex Tax Planning
Multi-year tax planning for Calgary business owners, incorporated professionals and families whose tax position depends on decisions made over several years.
Most tax work looks back at a year that has already ended. Planning looks forward. For an owner-manager or an incorporated professional, the decisions that shape the tax outcome, such as how to be paid, where to keep surplus earnings and when to take money out, play out over several years. Making them one year at a time can produce a result that looks fine in each year and costs more over the whole period.
We build a multi-year view of your personal and corporate position: expected income, how much you need to draw personally, retained earnings, investment plans and known future events such as a home purchase, retirement or a sale of the business. Each year we update the plan against actual results rather than setting it once.
A core part of that plan is the salary versus dividend mix. Salary is deductible to the corporation, creates RRSP contribution room and CPP entitlement, and requires payroll remittances. Dividends are not deductible to the corporation, do not create RRSP room, and avoid CPP contributions. Paying family members is limited by the tax on split income rules, which can apply the top personal rate to dividends paid to family members unless an exclusion applies. We review which approach fits your circumstances each year.
Holding company and operating company structures
In a holdco and opco structure, an operating company runs the business and a separate holding company owns shares of the operating company. Profits that the operating company does not need can be paid to the holding company as dividends, and between connected Canadian corporations those dividends can often move without immediate corporate tax, subject to rules that need to be checked case by case.
The structure is commonly used to hold retained earnings and investments in a company separate from the one carrying on the business, to give more control over the timing of personal dividends, and as part of longer-term retirement, succession and estate planning. It also adds a second set of corporate filings, a second T2 return and ongoing costs, and investment income earned by a connected holding company can still reduce the operating company's small business deduction. Whether the structure is worth it depends on your circumstances.
Restructuring an existing company into a holdco and opco arrangement, and any question about legal liability or protecting assets, involves corporate law as well as tax. These questions should involve a lawyer. We work on the tax and accounting side and coordinate with your lawyer so the two agree.
Professional corporations
Doctors, dentists, lawyers, engineers and other regulated professionals who practise through a professional corporation face the same salary, dividend and retained earnings decisions as other owner-managers. Their professional regulator also sets rules on who can own shares, which affects the planning that is available. We take those rules into account when building the plan.
What's Included
- Multi-year personal and corporate tax projections, updated against actual results
- Salary and dividend mix review for owner-managers and incorporated professionals
- Review of holding company and operating company arrangements
- Tax on split income review before paying family members
- Coordination with your lawyer and investment advisor on structure decisions
FAQ
Does a holding company protect my assets?
Whether a structure provides any protection depends on the legal facts of your situation and is a question for a lawyer. We can explain the tax and accounting effects of a holding company, and we coordinate with your lawyer on the legal side.
Is this general information or advice for my situation?
The content on this page is general information. Tax planning depends on your income, family, corporate structure and goals, and the right approach for one person can be wrong for another. Advice for your situation comes from a review of your actual numbers.
When is it worth starting multi-year planning?
Usually once a corporation is earning more than the owner needs to draw personally, when a professional is considering incorporating, or ahead of a known change such as retirement, a sale of the business or bringing in family members.
Need help with Complex Tax Planning?
Tell A4SB about your accounting needs and we can discuss the support that may be relevant to your situation.