Should I Incorporate – Income Splitting

Transcript:

Hi everybody. I am Jonathan Sears from Sears Chartered Accountants. We have been talking about the reasons to incorporate. So far we talked about credit approving, and we talked about tax deferral and now we talk about income splitting which to me is the biggest advantage of incorporating.

Income splitting is basically an opportunity to give other people other than yourself income. All the time people say I am doing that already as a sole proprietor, I am paying my wife a salary, but that could be problematic. The main reason that could be problematic is because CRA may do an audit and determine that it is an unreasonable salary that you are paying your wife or potentially husband. A good way to get around this is to incorporate and give such your spouse shares which gives you an opportunity to pay them dividends. Dividends are wonderful because you don’t have to justify why you are giving them those dividends whereas with the salary you do. Dividends are basically received because that individual has stock in the corporation. Another advantage you could potentially give to children if 18 years or older as well as parents or anybody else who may be in a lower tax bracket. A lot of people say that I don’t want them to have voting shares and that’s fine. You can actually set up the corporation so that there are non voting shares. That way you get an opportunity to give them dividends and they don’t get a say in the corporation.

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