The most significant tax advantages available to a PC are generally the corporate tax rate advantage and the income splitting advantage. It is important that there be proper tax planning in advance by the accountant and lawyer. For example, physicians are allowed to split income with other family members, such as a spouse, parents, children and trusts for minor children. The income splitting is achieved by having the family members own non-voting shares of the PC that can receive dividends as determined by the physician. Dividends are taxed more favorably than other types of income. Dividends can be paid most tax-efficiently to family members who do not have significant other income.
There are additional possible tax advantages, such as creating an individual pension plan, tax deferral (to next year) by bonus accruals, use of non-calendar year end, no GST payable on dividends and no requirement for dividend recipients to perform reasonable (i.e. any) services.
How does the Lower Corporate Tax Rate Result in Tax Savings
A corporation (including a PC) can earn up to $500,000 per year of active business income and will be taxed at a lower tax rate. This provides considerable tax savings compared to the personal tax rate of a physician in Ontario. This lower tax rate applies only to income left behind in the PC.
At RAVINDER MAKKAR CPA, CGA office, we assist in Taxation planning for our clients. Taxation issues vary for different types Professional Corporations and can be complex. Along with our tax advisers, we can help your organization to be tax-compliant and efficient.
For further information contact us at: 905-791-6666 or e-mail: makkarcpa@hotmail.com
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