Corporate Taxes Payable - Steps
Corporate Tax Calculations Rates
Part I
Business income - Public company/large CCPC —> 15%
Business income - small CCPC (<500k) —> 9%
Investment income —> 38.67%
Part IV
Dividends from non-connected CDN companies —>38.33%
Dividends from connected CDN companies —> % ownership x dividend refund by corporation
Class 1
Buildings
4% for residential
6% for non residential
10% for manufacturing
Class 8
Machinery, equipment, furniture
20%
Class 10
Vehicles
30%
Class 10.1
Luxury vehicles
30% limit to prescribed amount
Class 12
Computer software (NOT systems software), uniforms, tools <$500
100%
Class 13
Leasehold Improvements
Max CCA - Lesser of:
1/5 of capital cost
Capital cost of leasehold improvement/lease term remaining + one renewal option
Class 14
Definite Life Intangibles (patents, franchises, concessions, licenses)
Straight line over legal life
Class 14.1
Goodwill and Indefinite life Intangibles (incorporation costs, customer lists)
5%
Class 16
Taxis, vehicles used in daily car rental business
40%
Class 17
Roads, Parking Lots, other surface constructions
8%
Class 29
Machinery and equipment purchased between 2007-2016
Class 44
Patents
25%
Class 50
Computer hardware (computers, laptops, smartphones) and systems software
55%
Class 53
Manufacturing Equipment
50%
Class 54
Zero Emission Vehicles
30%
Advantages of Incorporation
Potential for income splitting
Limited liability
Lifetime capital gains deduction
Estate planning
Flexibility as to how/when the income is distributed
Disadvantages of Incorporation
Cannot use business losses against other types of income for the individual
Maintenance costs (ex. Incorporation/filling fees)
Not eligible for tax credits & charitable donations available to individuals
Cost of winding up corporation
Double taxation
Advantages of Salaries
RRSP contributions: RRSP contribution limit is based on earned income. Earned income includes income from salaries but NOT dividends.
Child care costs: similar to RRSP, child care expense deduction is calculated based on earned income.
CPP/Canada Employment Credits: these tax credits are only available if an individual receives a salary.
A salary will be deductible to the corporation, as opposed to a dividend which is paid out of after-tax income.
Disadvantages of salaries
Income splitting: paying dividends offers the opportunity to split income if some shares are held by family members. In order to pay a salary to a family member, they need to be employed in the company
CPP and EI contributions: when a salary is paid, CPP and EI contributions must be made, by both the employee and employer. The same could apply for certain provinces with additional payroll taxes.
Instalments?
If large balance owing in two consecutive years, must start making instalment payments (quarterly).
If instalments are not paid —> interest and penalties
Who is eligible to claim the LCGE deduction?
Any resident of Canada
What gains are eligible for the LCGE deduction?
Gains from disposition of qualified property (QSBC shares)
Requirements for Qualified Small Business Corporation (QSBC)
The corporation must be a CCPC
90% of assets invested in active business carried on in Canada on the day of sale
50% of assets invested in active business carried on in Canada throughout 24 months
Shares must have been held for 24 months
Requirements for a CCPC
Private company, incorporated & resident in Canada
Cannot be controlled by a public corporation or by non-residents
CCPC shares cannot be listed on a designated stock exchange in Canada or certain designated foreign stock exchanges
How much is the LCGE deduction?
1,016,863 (limit at 50%, so 508,431)
How do you claim the LCGE?
Need to calculate the gain from disposition and fill out the form T657