These last few weeks of the year are a good time for business owners to take advantage of opportunities to save tax for themselves and their businesses for 2013 and 2014. If you start reviewing your business and personal tax situation now, you’ll have more tax saving options to choose from than you would if you waited until the last minute.
Business owners can choose to receive remuneration from their businesses as salary or dividends or a mix of the two. You should consider the salary/dividend mix that will be the most tax-effective for you each year because changes to tax rates and other rules can affect the results. For example, you have an opportunity to save tax if your company can pay you “non-eligible” dividends in 2013 instead of in 2014. Non-eligible dividends are different from eligible dividends, which are paid to individuals by public corporations and Canadian-controlled private corporations (CCPC) out of business income that has been taxed at the high corporate rate. Any other dividends are non-eligible, including dividends paid to individuals by CCPCs that pay tax at the low small business rate.
The federal tax rate on non-eligible dividends is increasing in 2014, along with rates in some provinces. If you’re in the top tax bracket in your province, your tax savings from receiving non-eligible dividends in 2013 instead of 2014 range from a high of about 4% in Ontario, British Columbia and New Brunswick to a low of slightly more than 1% in Quebec. In Alberta or Saskatchewan, you can save about 2%. Tax savings in other provinces range from about 1.5% to about 3%.
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