New Income Splitting Rules for Canadian Corporations (2018)

[@1221sunny]

This is really detailed and helpful.

[@MoneyWithMark69]

ALLAN! This video is amazing. I'm so happy I found your channel. Question for you, can the owner of a business receive dividends? Do you have another video on this?

[@chiragpathania6192]

Hey Allan , does the second exception holds good if the business is a service based corporation and family member is employed more than 20 hours a week .

[@AllanMadanCA]

Hi Chirag, Yes, if the family member is working for a family business (service-based) at least 20 hours per week on average consistently, then a reasonable amount of dividends can be paid to the family member.

[@chiragpathania6192]

@@AllanMadanCA many thanx for solving my query....

[@ricrich1570]

Thank you for your videos. I'm now a new subscriber!

[@AllanMadanCA]

Thank you. I hope that you enjoy our videos.

[@dropd4thewin]

Lol love the married with children analogy!

[@AllanMadanCA]

Thank you!

[@pramitmehta6177]

Why was the old video deleted? I just posted a question 5 mins ago.

[@AllanMadanCA]

Hi Pramit, we made a small typo in the video, which we corrected. Can you please re-post your question and I will answer. Sorry for any inconvenience caused.

[@pramitmehta6177]

Sure. Thanks for the reply. I had 2 questions- 1. Do these rules apply only to CCPC paying a dividend to family members who are more than or equal to 18 years? How about paying salary in the business to a family member who is more than or equal to 18 years? 2. Exception no. 2 and 3. Suppose, the family member is paid an unreasonable amount. Will the amount above the reasonable amount be taxed or will the entire reasonable amount be taxed to such family member receiving the dividend?

[@AllanMadanCA]

Thanks for your questions. The rules apply to family members of any age receiving a dividend from a CCPC, unless one of the three exceptions are met. A reasonable salary can be paid to a family member working in the business - check the legal working age in your province for children under 18. If a family is paid an unreasonable amount, the unreasonable amount is taxed at the highest marginal tax rate, but not the entire dividend paid.

[@pramitmehta6177]

Thanks a lot for the response. I was wondering about salary paid to children aged lets say 7 and 10. If children of such age are paid salary of $ 6400 for lets say helping with the filing on weekends, would entire 6400 be disallowed because it looks unreasonable? And in this case, is the portion disallowed (full/ excess) taxed to the recipient at maximum marginal rate? I look forward to hearing you. Thanks. Pramit

[@AllanMadanCA]

If a salary of $6,400 paid to your child is not reasonable, then the entire amount of the salary (i.e. $6,400) will not be tax deductible to the corporation, pursuant to section 67 of the Income Tax Act. I'm not sure if the CRA would attribute the $6,400 salary to the parent, so that the parent would pay tax on the $6,400 at his marginal rate. I would need to research this further. I have read some literature that suggests that income attribution rules would apply.

[@stormont666]

awesome example, this will help me remember.

[@peterquynhle]

Hi Allan, Thanks for your video. I like it - clear to the points and easy to understand. The format/presentation of your video is very interesting. I have question not relating to corporation. What software/tools you used to produce your videos? I hope you will share your thoughts. Thanks.

[@nataliarestrepo4407]

Hi Allan, this is my first year filing for the corporation we opened sept 2019. I am confused if I have to file separately from the corporation? Since the deadline is june 1st.

[@nataliarestrepo4407]

Thank you, any tips are appreciated!

[@pramitmehta258]

Hey Allan, can you share a link from canada.ca that talks about the new rules? We have capstone 1 presentation and we need tp cite this. I would appreciate your response.

[@AllanMadanCA]

Hi P M, please see this link from the CRA's website for more information on the income splitting rules: www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/federal-government-budgets/income-sprinkling/guidance-split-income-rules-adults.html

[@videocontentmarketer]

Great video! Love your channel!

[@AllanMadanCA]

Thank you!

[@trekkernation]

Hi Allan, regarding non-service business, you mentioned that more than 90% of business income should derive from non-service activity. But I guess what the rule says is that at least 10% of the income should be from Non-service activity. Please see below and correct me if I misunderstood. Thank you. "Adults aged 25 or over who own 10 per cent or more of a corporation that earns less than 90 per cent of its income from the provision of services and is not a professional corporation."

[@AllanMadanCA]

Hi Sid, yes, you are correct. For example, a business with 15% service revenue and 85% non-service revenue would not qualify for the exception to the income-splitting rules for dividends.

[@saxonkuhle7008]

Do I have to have Kelly Bundy’s hair to be exempt?

[@west-sidepharmacy5683]

Hi Allen It has to voting share or non voting share would be okay? if if my wife own just 10 % voting share then she is eligible for only 10 % of Dividend or i could do more than 10 ? Thanks

[@AllanMadanCA]

Thank you for your question. If your spouse owns 10% voting shares that are a separate class of shares than yours, she can receive more than 10% of the total dividends paid by the company. However, if she has the same class of shares as you, then she can only receive 10% of the total dividends paid by the company. Furthermore, her shares have to have dividend rights. Remember that under the new rules, your spouse has to be working in the business for at least 20 hours per week consistently and the dividends paid to her have to be reasonable based on the work that she performs.

[@west-sidepharmacy5683]

@@AllanMadanCA Thanks Allen so my wife has to work 20 hour consistently even though she owns 10 % voting share in order to get dividends?

[@dayna3464]

Hi Allan. Thanks for the video. I have a question that i don't think was answered. I own a corporation as a contract operator in the oil field. My wife and I each have 50% ownership and accordingly my T5 shows that she makes 50% of the dividends and i make the other 50%. Are the new income splitting rules going to affect us? My wife has no income other than the dividends.

[@AllanMadanCA]

Hi Dayna, Yes, the new income splitting rules will affect you. Your wife can only receive dividends from the company if: 1) She works at least 20 hours on average per week in the business in the current year (or 20 hours / week on average in the previous 5 years; the 5 years do not need to be consecutive); and 2) The dividends paid to her are reasonable based on the type of work she is performing and her experience / education level.

[@matts.6558]

Hi Allan. Great video, I enjoyed the Married with Children reference in your example. So this means that service businesses will be adversely affected by the tax changes, in that they will not be exempt if 100% of income is generated from services and not goods (i.e. consulting or construction business, wife owns 20% but is not actively involved?)?

[@AllanMadanCA]

Hi Matt, Canadian corporations that generate 90% or more of their income from services will be negatively impacted by these new rules. There is a carve out / exception for non-service businesses, where the shareholder is a family member who is at least 25 years of age and owns at least 10% of the voting and equity shares in the business.

[@dadnotbot9917]

Thumbs up for Al Bundy, Comment and Subscribe for Kelly, haha, nicely done Allan :) Thank you 🙏

[@yebria6835]

Great video. Thank you Allan.

[@AllanMadanCA]

Thank you

[@junmaha5925]

Well explained. Thanks!

[@AllanMadanCA]

Thank you for the positive feedback.

[@kevinrodriguez8704]

Really well done

[@AllanMadanCA]

Thanks Kevin!

[@skaarraeem25]

Hi Allan. Been following your videos and thanks for the informative content. I have newly incorporated. I work from home offering virtual call centre services to a client. I do not plan to hire any employees. I am not too sure how to pay myself. I do not want to make CPP and EI deductions. Upon following your channel, I understand I can pay myself dividends but I am not clear on how much I can pay myself. I would ideally want to take all the money. Honestly I am still an independent contractor who had to incorporate due to the requirements of the client. Can you kindly address this situation and offer advice? I work a Max of 30 hours a week and make $600- $1200 bi weekly. I will never make above $30,000 annually. Thanks

[@AllanMadanCA]

Hi Sara, Thank you for reaching out to me. You can pay yourself entirely in dividends. However, the dividends paid cannot exceed the retained earnings of the corporation.

[@joanner2644]

Very helpful, would love to see a video on how to prepare a minute book for a small Corp. Thks,

[@AllanMadanCA]

Thank you for your feedback. I will try my best to prepare this requested video.