The bomb

CRASH modified

Jeff’s a doctor who makes a ton of money and is aroused by not paying tax. This is contagious among medical people. So, lots of them earn their income through professional corporations, live on meagre dividends and shelter the cash so they pay only the lowly small business tax rate instead of handing over half to government.

A day or two ago this blog started to explode that myth. Jeff deflated.

“Do you feel these corporations have no place in a financial plan as a tax deferral strategy,” he asked?  “On the face of it, it would appear to me that ours is allowing us to accumulate wealth (inside a holding co.) more quickly than if we took the entire net of our business as salaries, paid the full personal tax rate, then invested the remainder.

“Are we fooling ourselves?  Is it just an illusion of greater wealth, given that tax still needs to be paid on the full amount?  Is this just a tax bomb that’s going to go off when we retire (or before?) and the CRA treats the income of the holding co as passive and taxes it at the highest rate?  I have an accountant and fee only financial planner, both of whom I trust, but I’m always interested in differing opinions, especially from people who understand the Canadian tax system as well as you do.”

It’s an interesting set of questions. Countless well-paid professionals think like the doc. They believe they’re gaming the system. Poor fools.

Of course this ain’t just a medical thing. In our part-timer, contracted-out, no-job-security economy a growing number of people are not working for a corporate paycheque. Instead they sell their services to companies that don’t want lots of messy, expensive, maternity-leave-taking, days-off-sick, vacationing, I-wanna-raise employees. Increasingly, these folks incorporate. The money they receive is not subject to withholding taxes, and the employer writes it all off without having to make EI or CPP contributions. Win-win. Maybe.

This is where human emotion kicks in. Greed, mostly.

Contractors – whether they’re neurosurgeons or guys fixing motherboards – don’t want to pay the same tax as employees, so they usually end up taking living money as dividends, instead of income. This entitles them to the dividend tax credit, so they ‘save’ tax. In reality, the dividends come from the after-tax earnings of their professional corporations. In other words, there was no tax saved because the corp paid half, and the corp’s owner paid the other half.

In contrast, if the worker takes all of the pre-tax earnings as income, then the company would have paid no tax. But, of course, the owner would have paid a higher rate, on a higher amount – plus earned RRSP room, which dividend income does not allow.

Ironically, because contract workers almost never have a pension plan, they’re ideally suited to build up large RRSPs. In retirement (without a pension income stream) they can control their own income, collapsing those RRSPS in a careful and tax-efficient manner. Besides, every year they earn and make an RRSP contribution, they can write it off their taxable income, mitigating the bite.

Of course, money inside an RRSP grows completely tax-free, as it does inside a TFSA. However money invested inside a small business is fully taxed at the business rate – less than the personal one, however taxed nonetheless. Balanced against this is the ability to split income with a spouse of an adult child, if they are corporate shareholders.

But, it gets more complicated, because at some point all the money Jeff plans on amassing within his corp, so he can ‘avoid’ taxation now, will have to move into his own hands. How do you plan on pulling that off, I asked him? And he said his scheme was to slowly take dividends from his company in retirement so he’d never have to be in a high tax bracket.

For a short time I actually ran Revenue Canada, Jeff, I said. Trust me They have this one nailed.

It’s hard to believe so many advisors and accountants are unaware, but thirty years ago the Income Tax Act was modified so contractors like the doc would not escape tax by sheltering money inside a small business corporation. One a company stops being active (bringing in revenue from operations) and becomes passive (making money from investments or rent, for example) the rules change.

So the Tax Act imposes an income tax rate on a passive corporation that equals the top marginal rate paid by an individual – which these days is roughly 50% in Ontraio. That means all investment income earned is treated the same as if it has been in the hands of the owner. The retired worker can still take income in dividends, and collect the dividend tax credit, but only after the corp has paid that top rate.

So what is an ‘active’ business? It’s one that is not a personal services corporation, nor only invests or collects investment revenues. In other words, if you thought you could grow and shield money for your Harley-riding, pill-swallowing, Viagra-reliant, bionic knee and thirsty underwear years, forget it.

So what should you do it you sell your services instead of your time?

Don’t assume a corp is always the best structure. You’ll pay more in professional charges, gain no relief from personal liability, and find it’s hard to ever shut down. Maybe a sole proprietorship might be the thing – still allowing you to deduct expenses from earned income – and way cheaper. Besides, you can earn RRSP room that way and end up with more retirement options.

So, Jeff, it’s no tax dodge. You got bad advice. But your accountant gets to collect more fees. What a surprise.

157 comments ↓

#1 Blacksheep on 05.10.15 at 3:54 pm

Daisy # 257,

“We do not have to allow ourselves to be brainwashed. We can think for ourselves, can’t we….and make choices that are right for us?
—————————————
To “allow our selves” insinuates one making a conscious decision, a choice.

To make a choice: action A) or action B), one must first have awareness and knowledge, not corrupted by an external influence.

A) Virginity or B) Sex ? A) University or B) Trades ? A) Marriage or B) Single ? A) Own or B) Rent ? A) Children or B) Dinks ? A) Church or B) Agnostic ? A) Vote or B) Abstain? A) Employee or B) Entrepreneur ?

If the Parents, the school system, the church and the state, have told you your entire life, your a fool to make any choice, other than action A), the odds are quite high your choices in life will be, action A).

BUT if you were to fortunate enough (?) to have a truly critical thinking influence in your life, or experience a personal trigger (similar to finding religion) prompting the seeking of real truth, you would know exactly what I am talking about.

A simple question for you Daisy, if you would humour me: Why did Building 7 fall?

#2 ShawnG in TO on 05.10.15 at 4:01 pm

I thought a corporate pension would suit these contractors better. It’s like personal RRSP, but it’s paid by company before taxes, and you can put in as much (or little) as you want. It’s money sitting outside of your company, and pays all your employees after retirement until the end. Do I have it all wrong?

Not practical for a one-person company. And beware of insurance salesguys telling you otherwise. — Garth

#3 crowdedelevatorfartz on 05.10.15 at 4:01 pm

Socialists rejoice!
The “rich” doctor has to pay more in taxes unless, of course, he decides, like most over taxed rich people with endless options, to move to the US………

#4 Blogbitch on 05.10.15 at 4:13 pm

As always, this was an interesting and thought-provoking post, Garth. In recent years, I have run into the circumstance that large organizations would not hire me as a sole proprietor and *required* me to be incorporated. They claim this is due to CRA rules. It is not enough that I do not occupy a space at their office and use my own equipment. They require copies of the incorporation docs, corporate insurance, etc.

Otherwise, they tell me that there are 10 people lined up behind me who can meet their requirements and they are happy to hire them. Whether these large (often government-funded) organizations will tell me that they don’t want to run the risk of hiring a “contractor” who, in the eyes of the CRA is really an employee. Whether these large organizations really know their CRA “rules” is a different matter.

The reality is that independent contractors are being told that if they’re not incorporated, they are “ineligible” to work with large organizations as a contractor.

#5 Hawk on 05.10.15 at 4:14 pm

I fall into exactly the category that this blog describes today (contractor) but the difference is that many such as myself choose to be contractors, because the top-line revenue as a contractor is much greater than a so called counterpart “permanent” employee earns. And the days of a permanent employee having job security are now fast fading away.

But I agree there is no avoiding taxes, in a country where most people’s worldview is that they are “entitled” to receive a share of their fellow citizenry’s income—— (example all the attacks on our rich white old host in the last few days)——, that can only be done by moving to a land with a less confiscatory outlook towards the productive.

So it is best to take the money out, salary or dividend. I tend to go with dividend only because I believe the small incremental benefit is that we don’t have to pay CPP that way since I greatly doubt there will be anything for us when we all retire as pension anyway. But other then that it makes no difference whether we take money out as salary or dividends.

#6 Hawk on 05.10.15 at 4:21 pm

crowdedelevatorfartz on 05.10.15 at 4:01 pm

=====================

The super rich may have some options, like the part owner of Facebook that quit America and became a citizen of Singapore, or the Frenchman that decided to pursue Russian citizenship, but ordinary working class professionals (aka the doctor) “perceived to be rich”, don’t have that luxury.

That said, if a person is very young and very bright and hardworking they probably have a far better future outside Canada then within it.

#7 PM on 05.10.15 at 4:21 pm

Socialists rejoice!
The “rich” doctor has to pay more in taxes unless, of course, he decides, like most over taxed rich people with endless options, to move to the US………

Yes because Canada is a unlivable wasteland without any medical professionals: http://gamapserver.who.int/gho/interactive_charts/health_workforce/PhysiciansDensity_Total/atlas.html

Not everything has to be political. This is simple tax advice for people that are smarter than the average bear to make a good income but not smart enough to realize their financial advice is lying when say there’s a ‘trick’. The tax man has been doing this a long time, he knows it all and gets his ounce of flesh.

Now shut up. Pay your taxes utilizing the best minimization strategy you can and complain about how they’re spent like the rest of us.

#8 Randy Randerson on 05.10.15 at 4:28 pm

The main benefits of a CCPC is its ability to defer tax. If the Doc’s income is $150k+ but his annual expense is only $70k, he can defer paying personal tax on the retained earnings. When he’s off work he can withdraw the money out, keeping his tax brackets low.

————————-

“So the Tax Act imposes an income tax rate on a passive corporation that equals the top marginal rate paid by an individual – which these days is roughly 50% in Ontraio. That means all investment income earned is treated the same as if it has been in the hands of the owner. The retired worker can still take income in dividends, and collect the dividend tax credit, but only after the corp has paid that top rate.”

What you mean by that is that investment (passive) income is taxed at the higher rate. Basically the gov will make you pre-pay your tax. Not much around it, although the RDTOH refund mechanism will reduce the tax bill. Every dollar in the RDTOH is refunded for every $3 of declared non-eligible dividend.

Integration basically makes it the same as earning investment income personally. I have a CCPC and I’m all for it, since I only need half of my income for my expenses.

#9 Contrarian Coyote on 05.10.15 at 4:31 pm

Timely post. I’ve been dithering between incorporating and just registering as a self-employed consultant. My contracts are too small now so incorporation is now more a vanity thing rather than really practical.

On another note, 10 years abroad as a cubicle mammal, it’s nice to be free-range again. Thanks again for the posts and advice.

#10 Victoria Real Estate Update on 05.10.15 at 4:32 pm

. Average Single Family Home Price. .
. . . . (January through April). . . . . .
. . . . . . Greater Victoria. . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . .
620 K. . . . *. . . . . . . . . . . . . . . .
619 K. . . . . . . . . . . . . . . . . . . . .
618 K. . . . . . . . . . . . . . . . . . . . .
617 K. . . . . . . . . . . . . . . . . . . . .
616 K . . . . . . . . . . . . . . . *. . . . .
———————————————————-
. . . . . . . April. . . . . . . . April. . . .
. . . . . . .2014. . . . . . . . 2015. . . .

(source: Victoria’s board)

So far in 2015 in Victoria, the average price of SFHs (in January, February, March and April) is lower than it was in the first 4 months of 2014.

Prices are falling in Victoria and if it weren’t for the significant upward skewing that we’ve seen in 2015, the average price of SFHs would be moving down a lot faster than it is.

How do we know that skewing is happening? It’s all about a big change in the sales mix.

Comparing February, March and April SFH sales in 2015 to 2014, there has a big increase in the number of sales in the more expensive areas (Victoria, Oak Bay, Saanich East and North Saanich) compared to a much smaller increase in sales in the less expensive areas (Esquimalt, Sidney, Colwood, Langford and Sooke).

The SFH sales mix has changed dramatically in Greater Victoria over the last year, which has pushed the average price of SFHs significantly higher than it would have been if the sales mix hadn’t changed.

Even with upward skewing of the SFH average price this year, it is lower than the SFH average price of a year ago (see chart).

It should be alarming to all Victoria mortgage holders that SFH prices are lower year-over-year despite a year-over-year drop in interest rates.

Interest rates are set to begin their long upward journey from record-low to normal levels this year. Garth has explained why this will happen. Five year rates may be moving higher almost immediately.

Prices will continue to fall in Victoria.

If you bought a property in Victoria this year, you’ve made a huge financial mistake. You obviously didn’t take the time to learn about the financial hardship that American near-peak buyers continue to go through today as a result of buying at bubble prices 10 years ago.

The consequences of buying at the wrong time will become apparent to you in the not too distant future.

Girls and guys, it isn’t different in Canada and it isn’t different in Victoria.

Wait for lower prices. Right now renting is the financially responsible choice. Buying isn’t.

Until next time – Cheers!

#11 Dr Zus on 05.10.15 at 4:39 pm

Excellent article! This is a topic my spouse and I have been debating for a while.

I gather from this post, that there are few benefits to incorporating and paying oneself dividends as a means of lowering taxes. However, if the spouse in this situation were to take unpaid leave for family reasons, would the tax-splitting in paying out dividends to them make this option more appealing? Or are normal, income tax splitting measures (e.g. using spousal RRSPs or the current government’s tax laws) similar enough to not bother with the hassle and fees of incorporation?

#12 Ron B on 05.10.15 at 4:43 pm

Sorry but one more time.
Melt an RRSP down in 5k increments correct?

And do it in a non working year if possible or a year where one is not working full time?

Thanks for the advice and help.

#13 Blacksheep on 05.10.15 at 4:47 pm

crowded # 283,

“@#282 Blacksheep crazy conspiracy theorist.

“A simple question for you Daisy, if you would humour me: Why did Building 7 fall?”
++++++++++++++++++++++++++++++++++++
“Gravity?”
——————————————–
ALERT, ALERT, ALERT….

Anyone currently located in any, multi level commercial buildings, your life is in grave danger!

Please evacuate the building immediately, if not sooner as we have received confirmation, that only gravity, is required to cause these type of structures to collapse at free fall speeds!

#14 Incorporate doc on 05.10.15 at 4:49 pm

Hi Garth,
Have read your blog for years. Love he dog pictures, sexual innuendo and he advice. I am incorporated. We live on much less than I earn so my wife and I max our tfsas, reap for me as a spousal rrsp, and I keep a big chunk in the corp each year. All is self directed eft investing as you suggest (thanks for that!). I understood the tax as you described, but the change to passive corp and taxation was news to me. Thanks. My question is if I continue to earn some professional revenue like say 1/4 of the amount of my annual corp revenue from investments while I siphon off dividends when I retire would my corp maintain the favourable acTive tax status?
Thanks

#15 Randy Randerson on 05.10.15 at 4:52 pm

Download this PDF:

http://www.kpmg.com/Ca/en/services/Tax/pages/tax-facts-2014-2015.aspx

You can check out the cost/benefits of a CCPC on page 73-77 for each province.

#16 cowtown cowboy on 05.10.15 at 4:53 pm

Garth,

I am in this situation myself, I’m more the motherboard guy than the med guy though! I was planning on trying to pad my corp over the next 15 years or so, and then draw salaries from the corp for my wife and I in the first 5 or so years of retirement to buy us time to let our RRSP’s and other non-registered investments grow before we have to start drawing them down.

In lieu of pensions, I felt this was an effective way to help save for our retirements. Is this plan fundamentally flawed?

Cheers

#17 Arch Douche on 05.10.15 at 4:57 pm

Another downside to incorporation as a contractor is that one must be careful that they don’t fall under the category of a personal services business. This would be the case when CRA views the relationship between the contractor and customer as being an employer/employee relationship vs. contractor/customer relationship. When this is the case, being incorporated is actually a disadvantage vs. being a notional ‘sole proprietor’ as the corp. is not eligible for the small business rates for CCPCs on taxable income up to $500k. Therefore they pay a higher tax rate, and have deductions limited to those of an employee. So there is additional incorporation costs, with no upside.

It is indeed surprising that accountants continue to recommend incorporation, when the benefits beyond limited liability are maybe ability to sell are few. Maybe in Barbados or Panama, but then you’re a target.

#18 kommykim on 05.10.15 at 5:00 pm

RE: #1 Blacksheep on 05.10.15 at 3:54 pm
A simple question for you Daisy, if you would humour me: Why did Building 7 fall?

Gravity. It’s a conspiracy of planetary proportions.

#19 jon on 05.10.15 at 5:02 pm

Hey Garth.
You are missing the part of the equation where all that saved tax money sitting in the corp earns a return during the active years.

#20 Shawn on 05.10.15 at 5:02 pm

A Business Scenario

Say I have an active small business corporation that makes money and I don’t need the money to live on.

With the profits I buy low or zero dividend blue chip stocks with the intention of holding for some years.

On those stocks the corporation pays tax on the dividends but the capital gain accrue on a tax deferred basis.

Years later I sell the stocks. I understand half the capital gain can be flowed out to me tax free. The corporation pays tax on the capital gain and keeps the remaining cash for now.

I believe this will save tax compared to taking the profits today as dividends or salary and then investing the after-tax amount.

The corporation always remains an active business.

Does this work?

#21 Shawn on 05.10.15 at 5:06 pm

For purposes of the small business capital gains tax exemption of roughly $750,000 per person the small business has to be active, meaning no more than 10% of the market value of assets in stocks.

If the business might be sold at some point then this rule might preclude keeping profits in the corporation and investing them.

But, if the business will never be sold (it’s basically a personal services business with no value apart from the current owner) can the business logically invest in stocks or does it lose the low tax rate on dividends and capital gains and if so at what level of assets?

#22 Shawn on 05.10.15 at 5:10 pm

Investing in stocks within a corporation

For Warren Buffett it worked out pretty well. But that is in the U.S.

Buffett has noted that if he invested in the S&P 500 stocks he faced a tax disadvantage compared the raw S&P 500 before tax figures. (Yet he still trounced the S&P 500)

But he also recently pointed out how he can move capital from one corporation to another within Berkshire tax free. And that this was a big advantage. But that is in the U.S. Not sure that is true in Canada.

#23 North Burnaby on 05.10.15 at 5:14 pm

DELETED (Anti-Chinese)

#24 Shawn on 05.10.15 at 5:16 pm

Actually, the point is not to save tax. Not at all.

It’s to end up with the highest after tax return.

RRSPs are called tax bombs. In reality you end up with FAR more money as compared to investing the equivalent after-tax amount in a taxable account. You end up with more and the tax man ends up with more. How? Because more money is growing and compounding. The pre-tax amount compounds rather than an after-tax amount.

It’s been demonstrated here many times that with constant marginal tax rates the RRSP is exactly the same as the TFSA. Ergo the RRSP is also tax free on your share of the contribution. (The amount you put in net of the refund)

#25 Andrewski on 05.10.15 at 5:20 pm

I know “professionals” who are doing this & outside their area of specialization, these same “professionals” are freakin clueless! Can you say: surprise, surprise, surprise (in your best Gomer Pyle voice)?!

#26 Realitybytes on 05.10.15 at 5:27 pm

Sole Props aren’t the answer. Agencies and client corporations don’t want to deal with them anymore.

Contractors often have down periods between contracts, and taking a salary out of the bloated copr account balances that out.

You still need to take some salary out which creates RRSP room.

And you are forgetting about tons of other tax advantages of incorporating, expensing the car, computers, home office, entertainment expenses, etc… Then the GST credits…

Very one sided analysis Garth.

All those costs can be expensed from a sole proprietorship. — Garth

#27 Obvious Truth on 05.10.15 at 5:31 pm

People love to hear they are going to pay less tax. It’s an easy sell. Sign me up. Never works. Unless you make less. Lawyers and accountants are the real winners. And the insurance guys they pass you off to.

Of course if you have a large family And trust them you might make a case.

And I guess the rules may eventually change to benefit rich people more. Ya never know.

Good practical post garth. More and more people are in this very position.

#28 Bill Gable on 05.10.15 at 5:34 pm

I find it amazing that people ignore the wise words of our Harley Riding Host; a chap that actually RAN REVENUE CANADA.

You have to pray that a lot of people wake up, because there are choppy days ahead. (*NDP running Alberta – if I told you that three years ago, hell, two weeks ago, you would have said I was nuts).
Now add what Mr. Turner has been talking about and add this ‘outlier’.
China just raised interest rates. Their Export sales have stalled.
Oops, R/E has cratered in Mao Land, and so there is about to be a ton of pain to be inflicted to the heavily leveraged “nouveau Chinois’ – and in turn; crunch Vancouver.

One more stat gave me a start > google “State Incomes Fall” > and read how poorly the lower 48 are truly faring.

That means a TON to Canada. The elephant is about to roll over.

Time to head to the Mouse Shelter.

#29 lurker on 05.10.15 at 5:35 pm

A corp can be an effective way for a spouse to co-own and collect dividends if they’re not working.

#30 JacqueShellacque on 05.10.15 at 5:36 pm

“Socialists rejoice!
The “rich” doctor has to pay more in taxes unless, of course, he decides, like most over taxed rich people with endless options, to move to the US………”

———————————————————

Even as a (small-c) conservative, this sounds a bit overdramatic, non? Seems to me that in Canada we occupy the middle space in the political-economy spectrum between Scandinavia (cradle-to-grave security) and the idealized laissez-faire captalism of Uncle Sam (yes, I know they aren’t entirely like that, but bear with me). Certainly being in the middle can protect one from extremes. But it can also make one blind to the trade-offs. Scandinavians for the most part are well aware of the costs of their system of governance, but are making a conscious choice to build their societies that way. And even Tea Partiers would concede that leaving things to work out as they will can lead to some undesirable outcomes. But here in Canada, we often don’t seem to understand this. A Canadian leftie (one whose voted NDP since Broadbent led them) wants us to live like they do in Sweden, but thinks someone else should pay for it. A Canadian rightie (the ones who put the guys Garth used to work with in their comfy Parliamentary chairs as PC caucus members) wants to earn like a robber baron but won’t undertake the risk and do the work a classical capitalist would’ve. Ultimately, our biggest problem as a nation is that we think we’re making “choices”, when really we’re about as unconscious a society as the industrial world has produced (except for Japan).

#31 Dave on 05.10.15 at 5:43 pm

“Clearly something different has been going on with Vancouver detached market than what we’ve been used to. Vancouver has always been a desirable market, and it has a pretty good history of appreciating, albeit not without it’s ups and downs, but what is happening right now feels irrational and frenetic. A lot of economists feel that Xi Jinping’s anti-corruption campaign has spurred Chinese to invest in Canadian housing, he’s been in power since Nov 2012. Coincidence? We do have low interest rates, but low interest rates typically spur the low end of the market (condos) more than the higher end, and that’s not what’s happening here.

Up until about 4 years ago the wealthier in Vancouver searched for houses on the West Side or West Van, and the middle class bought on the East Side, North van and further out.
What we have now, is the wealthier buying in East & North Van, and those that live in those areas (that wish to get in the market) moving even further out. West Van and Van West are heavily dominated by foreign investors, from what I’ve been told by a few realtors. We’ve always had a relatively equal playing field in Vancouver, based on local incomes and mortgage rates. That’s not the case anymore, we’re now having to compete with incomes from another Country, and we’re losing, at least in all of Vancouver West…so far

“The Canadian housing market is overvalued by 35 per cent compared to Canadian incomes, and 89 per cent compared to rents. Chinese money, of the hot and cold type as well as the clean and dirty variety, is no minor factor in the calamity. In Vancouver, as much as half the dollar value of detached housing sales went to Mainland Chinese buyers last year. Most of the $3 billion poured into the purchase of west-side Vancouver properties last year originated in China, a reflection of the spike in Chinese money that has entered Canada since China’s ruthless Xi Jinping took charge three years ago. There is also the predicament of all those voters who have mortgaged themselves to the hilt on the bet that their houses are going to continue to rise in market value.”

We’ve never had such a discrepancy in our price to rent ratio, nor have Canadians ever been in more debt than we are today.

Are locals and low mortgage rates to blame as well? Yup they definitely are to some degree, but there is no denying that had we implemented restrictions on foreign ownership 4 years ago locals would have been paying A LOT less for their Greater Vancouver homes.

When rates go up, and they will, it’s not going to be the foreign investors that may have to sell.

We keep hearing “demand is out pacing supply”, so cut out a percentage of the demand by restricting foreign owners and we won’t need as much supply…problem solved!”

Word..

#32 Dave on 05.10.15 at 5:49 pm

A tale of 2 markets.

“For you number and statistics freaks, I have just posted the MLS HPI for Vancouver apartment properties for January 1999-2015 over at Vancouver Peak.

In summary, if you bought early you will make/have made money. If you bought after about 2007 you will break even at best.”

And record breaking building permits this month in Van condo/apartments

#33 Shawn on 05.10.15 at 5:49 pm

Slow Boat to China?

Ron B on 05.10.15 at 4:43 pm

Sorry but one more time.
Melt an RRSP down in 5k increments correct?

**************************************
It is difficult to get much out unless you have no other income. The amount you can get out at a low tax rate depends on your other income, if any, and your province.

If you have a fat RRSP like $500k then this melt strategy is not going to do much.

In Alberta the lowest taxable income tax rate is 25%, so what are you saving really? and will it offset lost years of tax-free compounding on your after-tax share of the RRSP? (Not an issue if you have TFSA room).

In Ontario the lowest tax rate is 20.05%. So there is a bit more room to do something.

For those who will have either employment income or substantial pension income in all years there is basically no ability to melt-down an RRSP. Nor should there be. The government contributed roughly 30 to 40% of “your” RRSP through refunds. The whole thing grows tax free and now the government simply wants its 30 to 40% share back in most cases. Heck of a good deal for you. So no needs to Whine.

Now if you expect to be in the clawback range, despite income splitting, well there are worst problems to have.

#34 Smoking Man on 05.10.15 at 5:51 pm

You can’t beat Farmer Tax…

Learned my lesson about 20 years ago. They’re merciless badtards.

50% for you 50% for the Farmer.

With technology they have today.. Thier going to nail you if you cheat.

Pay and sleep at night..

#35 money agnostic on 05.10.15 at 5:51 pm

Thanks Garth, this is very useful.

“Contractors – whether they’re neurosurgeons or guys fixing motherboards – don’t want to pay the same tax as employees”.

Maybe the main reason why they don’t want to pay the same tax as employees, because they can’t enjoy the benefit of employment insurance, in case the company terminates their employment (sorry, “contract”).

“Employee contractors” typically also generate less revenue than real companies can charge for services, as they are still considered as employees, not real companies.

Basically, if you are not a real business with many customers than if you can’t get better tax rate, you are better off to be a “real employee”.

#36 Shawn on 05.10.15 at 5:53 pm

Yeah okay the lowest tax rate is 0% up to the personal exemption of $14k or so. But who has zero other income so that they can use that exemption for RRSP melt? Pyric victory to get yourself into that situation?

#37 Andrewski on 05.10.15 at 6:02 pm

Why in tarnation are so many of you, #10 Dr. Zus, #11 Ron B, #13 Incorporate doc, #15 cowtown cowboy, #19 Shawn, asking Garth for free advice? Why not donate some money to a local animal shelter in Garth’s name & then contact him privately?

#38 Arch Douche on 05.10.15 at 6:18 pm

#19 Shawn on 05.10.15 at 5:02 pm

Earning taxable capital gains on securities in a CCPC is not preferential on a tax basis to earning them personally – you’re worse off. The taxable portion is not taxed at the SBD rate and the general corp. rate is not preferential to the highest marginal personal tax rates as a rule (will differ from province to province).

The idea of a CCPC is to earn ABI (active business income). To the extent one can build capital within a CCPC through reinvestment of ABI into the actual business activities, one defers tax. There is no magic way to use a CCPC to earn passive income that is taxed at preferential rates (that I know of).

#39 Mark on 05.10.15 at 6:22 pm

RE: XRE questions from yesterday:

“““Distributed capital gains”? What distributed capital gains? I received nothing? Why pay tax on zero income?”

You received distributed capital gains, which were then subject to reinvestment and a reverse split by the fund. Again, this is the behaviour of a mutual fund trust, on which, instead of being taxed at the trust level, such distributions are flowed through to the beneficiary of the units.

If you don’t like this behaviour, that trustees are making decisions on your behalf to realize capital gains, then you should not invest in mutual fund trusts such as XRE. The proceeds of the realized capital gains were re-invested for you, and you have a legal obligation as a beneficiary of a flow-through entity to declare such notional distributions on your taxes and remit payment accordingly. Failing to do so is tax evasion.

#40 Vamanos Pest on 05.10.15 at 6:23 pm

Hey Garth,
With an ‘active corporation’ the tax credit given for dividends is to account for the fact that the corporation is paying dividends out of after-tax earnings.

If the ‘inactive corporation’ is paying the top marginal rate, rather than corporate tax rates, shouldn’t the dividend tax credit from these corporations be higher, to account for the higher tax paid by these corporations?

Also, for the doctor in the example, what is the minimum he could do to avoid the ‘inactive’ designation? Could he lecture (perhaps in the Bahamas?) on contract and avoid such designation?

Thanks Garth, interesting stuff today

#41 Randy Randerson on 05.10.15 at 6:25 pm

Another benefit with investment income is to invest your retained earnings within CCPC on Canadian dividend paying stocks only.

Eligible dividend from Canadian public companies flows to your CCPC tax-free (although there is a tax, but again RDTOH refunds all of it) whilst retaining its eligible dividend status. What this means is you have a bigger capital to invest within a CCPC, than personally, whilst enjoying the same tax benefits.

Of course the drawback is now you’re woefully underdiversified, geographically and sector-wise.

#42 Joe Schmoe on 05.10.15 at 6:30 pm

As Garth said, the benefit isn’t that great. It’s more of a media misnomer portraying another evil of the rich.

I was grinding on some spreadsheets the past couple of years and if you can retain a sizeable portion of savings within a PC, there is some small compounding benefit.

If you take most the earnings out in a year, there is likely no benefit.

Structuring lines of credit is much easier in a PC vs personal. I was shocked by this. The bank just set up an operating line based on % of annual income.

The other benefit is offsetting tax periods…may or may not be a benefit to some.

You can run from the tax man but not hide forever.

#43 Freedom First on 05.10.15 at 6:32 pm

Kind of makes all the wage slaves sit up and notice their own predicament. There is a lot of costs to having a “job” which you can’t deduct from your tax bill. Fill your TFSA, RRSP, accumulate other assets, cut your overhead, pay the banks nothing, and enjoy your life. You will leave everyone else in your dust.

Of course, upon hearing this most people will reply, “but but but but but…….. Your choice. Choose wisely.

#44 Rainmaker on 05.10.15 at 6:46 pm

Just wanted to say thanks for providing this blog and all the valuable advice. Although I work in the corporate jungle as an employee, today’s post provided interesting information I was not aware of.

Sold a home in the GTA in 2013 and now rent, I find this blog a place of sanity since most think not owning a home is not very wise. Very strong culture out there pushing home ownership.

#45 Property Accountant on 05.10.15 at 6:50 pm

Well, I do not think Jeff got a bad tax advice.
It really depends, but –

First of all, he gets to postpone his taxes and pays 20% steady corporation small business tax vs personal tax rate. He saves easy 10-20% there and it stays in his co. Imagine what 10-20% invested can do overtime.

Second, he can sell his corporation and claim 750K lifetime CCPC tax exemption on sale of shares.

Third, if he kicks the bucket and had his life well planned – meaning he made sure his business is active all the time (has a medical practice and several offices, employees) he can pass on the wealth to his family with a simple will. Try doing that with a business.

In some instances, were a personal corporation is actually salable, these are valid points. Most aren’t, however. — Garth

#46 Missing info on 05.10.15 at 6:54 pm

Also missed the fact that a Sole Proprietor needs to dish out ~ 5K a year in CPP contributions. Under an incorporation, that same person would contribution $0 to CPP contributions. Sure, the incorporation scheme would lead to lower CPP payments in retirement. But saving $5K/yr and putting into a TFSA (and earning 7% on) is likely far more favorable than paying into CPP and getting little to nothing back out of it, upon retirement.

Not a chance. — Garth

#47 Show me the $ on 05.10.15 at 7:03 pm

It has been a while since I did personal tax, but I believe there is not even a real time advantage to taking a small salary and topping it up with dividends. The formula is set up to put you in the same place as if it was all regular employment income. Is that correct Garth? I know there is a deferral of tax on what is left in the company; not so sure about saving anything by taking some of your salary as dividends.

I have a bunch of friends in the film business and trying to tell them that there is basically no advantage to incorporating has gone over like a fart in church.

#48 crowdedelevatorfartz on 05.10.15 at 7:10 pm

@#12 Blacksheep

Hmmmmm, apparently #17 kommykin believes in gravity as well.

If two of us are thinking along the same lines……it’s a conspiracy. ANOTHER conspiracy……

“paranoia will destroy ya”

#49 Joe schmoe on 05.10.15 at 7:11 pm

Show me the $,

yeah there seems to be prestige around it…not sure why.

We set one up for my wife as we were planning a family…she had parts of two years off so we could “level out” income over 5 years. Saved some taxes but not sure if the admin costs were higher.

Time will tell!

Guessing tax rates in the future is getting a lot more exciting!

#50 wallflower on 05.10.15 at 7:13 pm

#4 Blogbitch on 05.10.15 at 4:13 pm
Absolutely my situation.
Over these past 17 years, incorporated as a contractor (with ~5 clients per year) and for the past 12 would have had ZERO revenue without substantiation of incorporation.
Cannot get any work if not incorporated.
So there is no cost benefit tax matrix analysis for me.
It is simple: work, or no work.

#51 Soaps on 05.10.15 at 7:19 pm

I must be missing something…..as an incorporated physician, the retained earnings in the corporation are only taxed at ~15%. This is compared to the ~36% average tax as a sole proprieter at the income level of my example below.

Just throwing some numbers out there. A physician makes $200,000 per year after overhead costs. Only $80,000 of this is required for personal expenses. This can be paid as salary which earns RRSP contribution room.

VERY rough calculations, but:

$200,000 sole prop = $72,000 per year in income taxes. $128,000 remains

Incorporated paying $80000 salary to self. $18000 personal taxes paid, $18600 corporate taxes paid (120000*corporate rate). Total leftover ($62000 on personal side + $101400 on corporate side) = $163400

Overall tax savings of $35,400

There are other schemes such as whole life insurance that a physician could use to draw out of their corporation once retired (or to be transferred to family when deceased), to avoid the passive corp status issue.

Anyways, unless my math is off, how are the above tax savings not favourable to the incorporated physician?

A doc taking an 80K salary from the corp pays $31,000 in income tax (Ont or BC), not $18,000. The fed/prov taxes on the corp are $31,800, not $18,600. You save nothing. — Garth

#52 Nacho Cheese on 05.10.15 at 7:41 pm

This one is for you, Smoking Man. I remember someone mentioning the Fermi paradox about aliens, and this link is a cartoon video with a great explanation of it.

There’s got to be something else out there based on the vast number of planets, but the universe is so vast in size that we’ll likely never know for sure.

https://www.youtube.com/watch?v=sNhhvQGsMEc

#53 momoney on 05.10.15 at 8:07 pm

why doesn’t doctor man also setup a holding company, that doesn’t have to have business income. Just transfer your retained earnings, shares of business etc.

Isn’t there a way doctor man can build up goodwill in his business somehow?

holding company could own the building and operating company can pay rent to the holding company

Why would anyone hold property or assets inside an operating company?

Also does he own any life insurance thru his companies?

#54 Soaps on 05.10.15 at 8:09 pm

Garth, how are you getting those numbers? The corporation only pays tax on the retained earrings, which is 120000. Small business exemption gives a tax rate of only 15.5%.

#55 Ben on 05.10.15 at 8:10 pm

aww – what a shame, this guy has to pay for schools and hospitals in a really nice country and have a high (but not amazing) standard of living. Poor Jeff.

#56 Karl hungus on 05.10.15 at 8:11 pm

Also, no build up of rrsp room with dividends

#57 rawdiswar on 05.10.15 at 8:18 pm

Been a sole proprietorship a few times, takes a little discipline but you can make it work. Would have liked that to work with the OETC though, that would have helped.

As a sole proprietorship, is the best strategy to charge the client for CPP and EI, as you technically have to pay as the employer and the employee? Roughly half my income comes as an SP.

#58 BS on 05.10.15 at 8:21 pm

Forming a corporation is going to save you tax in most cases. Taking dividends saves you tax over a salary even factoring corporate taxes plus personal taxes almost always. Taking a dividend saves you CPP which if you do the math is not a good deal for anyone who has to contribute both the company portion and employee portion (unless you live to be 100 or more). But the big savings with a corporation is you can income split through dividends with a spouse (or other family member) by making him/her a shareholder. You can also differ income to other years. Corporations protect you from liabilities or being sued especially if you set up an op co and holding co. In my view a corporation is the only way to go if you have significant business income.

Partially correct. However the combination of personal taxes on dividends and corporate taxes is roughly equal to the tax on salaried income. Asditionally, no incorporation is going to protect you from being sued, successfully. Directors are usually liable for corporate actions. — Garth

#59 Still waiting on 05.10.15 at 8:25 pm

Isn’t income splitting one big potential tax advantage to the corporate option? As I understand it, a non-working spouse or a non-working adult child (eg a university student) can take about 40,000 annually in dividends and pay virtually no tax. That strikes me as a big advantage – am I missing something Garth? Thanks.

#60 Henry on 05.10.15 at 8:29 pm

Here’s a video that every Canadian who is concerned for their country should see. Let’s stop Harper before he turns this great country into a fascist police state.

DELETED (Ad hominem)

#61 Incorporate Doc on 05.10.15 at 8:35 pm

#36 Andrewski
My intention was not seeking free advice. Garth gives plenty of free advice with his blog. My intention was:
1) to thank Garth for his blog and that I actually heed much of his advice
2) thank his for this new perspective from today’s entry

I actually thought my question around actually differentiates an active from passive corp for taxes was relevant to the blog and discussion. I guess I should stick to writing FIRST!!!, conspiracy theories, or random thoughts like many others seem to.

I do have a fee based advisor and accountant (another one of wise pieces of advice repeated on this blog.

The sentiment of donating to an animal shelter is a good one which my family already does. In fact my daughter just turned 9 and instead of presents got her friends to donate to the local SPCA.
Anyway I will avoid asking questions around the topic of the blog in the future and return to lurking if it offends you.

#62 Liability on 05.10.15 at 8:42 pm

Garth,

What do you mean you’ll gain no relief from personal liability through a corporation? Aren’t all corporations limited liability, meaning that the shareholders / directors are only liable to the Gov for unpaid taxes?

Taxes. employee wages. Remittances. Criminality. Plus anyone wanting to sue you will not be stopped by a corp. — Garth

#63 Jacko on 05.10.15 at 8:45 pm

Thanks for the advice Garth. As a contractor there is an opportunity to employ your spouse, pay your children dividends as shareholders and funnel profits to a family trust, is this not worth being incorporated?

If you can pass the CRA smell test. — Garth

#64 A'Ok in Albertaastan on 05.10.15 at 8:48 pm

#51 Soaps on 05.10.15 at 7:19 pm

I must be missing something…..as an incorporated physician, the retained earnings in the corporation are only taxed at ~15%. This is compared to the ~36% average tax as a sole proprieter at the income level of my example below.

Just throwing some numbers out there. A physician makes $200,000 per year after overhead costs. Only $80,000 of this is required for personal expenses. This can be paid as salary which earns RRSP contribution room.

VERY rough calculations, but:

$200,000 sole prop = $72,000 per year in income taxes. $128,000 remains

Incorporated paying $80000 salary to self. $18000 personal taxes paid, $18600 corporate taxes paid (120000*corporate rate). Total leftover ($62000 on personal side + $101400 on corporate side) = $163400

Overall tax savings of $35,400

There are other schemes such as whole life insurance that a physician could use to draw out of their corporation once retired (or to be transferred to family when deceased), to avoid the passive corp status issue.

Anyways, unless my math is off, how are the above tax savings not favourable to the incorporated physician?

A doc taking an 80K salary from the corp pays $31,000 in income tax (Ont or BC), not $18,000. The fed/prov taxes on the corp are $31,800, not $18,600. You save nothing. — Garth
————————————————-
Wow, really, what a bunch of commies. Sure don’t pay that in Albertastan – yet.

#65 Catalyst on 05.10.15 at 8:56 pm

It’s hard to argue with “I ran the CRA”. I work in commercial banking and EVERY client has hold co’s and compensation maximize schemes. I’m not saying they all work, but why does everyone do it if there is no benefit. These business owners are smart individuals and I must think they do it for good reasons.

I’ll add estate planning as its one I’ve heard cited many times as well.

#66 Shawn Allen on 05.10.15 at 9:01 pm

Arch Douche said

There is no magic way to use a CCPC to earn passive income that is taxed at preferential rates (that I know of).

****************************************

Right, if you take out the money as income there is no tax advantage.

There do appear to be scenarios where leaving excess earnings that are not needed for living in the corporation and investing those can lead to tax advantages. If invested in a growing companies that do not pay a dividend (or pay only a small dividend) there could be decades of tax deferred compounding of wealth.

Some on this blog have argued that unrealized gains are not real until sold. That is not the case. Wealth is wealth. It should however be reduced by the taxes that would be paid upon sale.

#67 Dr. Dre on 05.10.15 at 9:03 pm

Garth is usually spot on with financial advice but he is off the mark here. The whole point of professional incorporation for dentists, doctors, lawyers, and accountants is tax deferral and thus faster growth of an investment portfolio. I will pay more tax overall by incorporating because my overall pot of money at retirement will be much larger. This method only works if you leave income in your corporation and you earn a return on that income. As it says in the following explanation any blog dog can understand, it takes money to make money:

http://professional-edge.ca/2013/11/27/save-more-with-a-professional-corporation/

#68 Soaps or Garth? on 05.10.15 at 9:30 pm

Garth, you did not respond to #54. Can zi infer from this that his calculation in #51 is correct after all. If so, your post is completely wrong, then, in claiming there is no benefit in the corporation structure. So, what is the actual situation?

#69 David McDonald on 05.10.15 at 9:40 pm

Today’s post made my eyes glaze over. Tax law like most subjects becomes complicated when you dig beneath the surface. I know it’s important to get it right and obviously Garth and some of the blog dogs are experts but I just can’t find it interesting. I prefer to do mathematics which would make most people’s eyes glaze over.

#70 45north on 05.10.15 at 9:42 pm

Brian Ripley: from yesterday, from his link:

from January 2012, Canada sales are parabolic

here it is again:
http://www.chpc.biz/6-canadian-metros.html

#71 saskatoon on 05.10.15 at 9:50 pm

#11 Ron B

why $5,000/yr increments?

why not go $11,000/yr (basic personal amount)?

did you mean /yr?

#72 Quiet guy in the back on 05.10.15 at 9:59 pm

The big benefit is income splitting to lower taxes.
The doctor can pay dividends to his family members.
Incorporation becomes much less useful if there is nobody he wants to share his income with.

#73 Smoking Man on 05.10.15 at 10:03 pm

I love reading the wide array of opinions on here, twitter, and any other venue where people can conceal there real identity. And really let it all hang out.

When baby’s are born, its brain is like a freash computer out of the box, doesn’t know shit.

Its at the mercy of its programming, or programmer’s.

You grow up in Gaza, your ideas and opinions are going to be a polar difference than the kids growing up in Israel.

Fortunately for me, a learning disability as kid prevented me from being shape shifted.

But strip out the programming what do we all want..

The same damn thing.

Our methods and tactic’s to achive that hoal are based on our programming.

#74 Boyd McConnell on 05.10.15 at 10:13 pm

What about expatriation?

My portfolio is about $3MM

I live in Southeast Asia a block from the beach in a five bedroom/3 bathroom house. Cost USD$300/month–also live with my 28 year-old GF–I am almost 62.

I am not a Nationalist and espy the flaw of democracy: promise the people more than they deserve or can finance.

If I go non-resident, I take a tax hit with a deemed disposition of my assets.

In my case, say, I have to pay capital gains on $500M–ONCE–which would be 22.8% X $500M = $140,000

That leaves me $2,860,000 after tax, which at 7% = $190,400 BUT NO TAX!

I am not a proud Canadian; I am a proud individual!

See you Offshore–BTW, how much does it cost the nation to press “1” for English and turn over the instructions from French to English?

#75 Squirrel meat on 05.10.15 at 10:37 pm

#74 Boyd McConnell on 05.10.15 at 10:13 pm

What about expatriation?

My portfolio is about $3MM

I live in Southeast Asia a block from the beach in a five bedroom/3 bathroom house. Cost USD$300/month–also live with my 28 year-old GF–I am almost 62.

I am not a Nationalist and espy the flaw of democracy: promise the people more than they deserve or can finance.

If I go non-resident, I take a tax hit with a deemed disposition of my assets.

In my case, say, I have to pay capital gains on $500M–ONCE–which would be 22.8% X $500M = $140,000

That leaves me $2,860,000 after tax, which at 7% = $190,400 BUT NO TAX!

I am not a proud Canadian; I am a proud individual!

See you Offshore–BTW, how much does it cost the nation to press “1” for English and turn over the instructions from French to English?

————————————————–
How much for syphilis treatment?

#76 Oot erday Hoos on 05.10.15 at 10:44 pm

idDay atthay ombbay itletay etgay, ownay egalizedlay, CSEC illbay Charlie-51 Stasi-7 ivefay eyes attention, aye?

(I just tied up 25 agents, a decryption super computer and one decoder ring).

#77 BS on 05.10.15 at 10:46 pm

Partially correct. However the combination of personal taxes on dividends and corporate taxes is roughly equal to the tax on salaried income. Asditionally, no incorporation is going to protect you from being sued, successfully. Directors are usually liable for corporate actions. — Garth

No question the net tax rate is close for a single person. With income splitting through dividends a corporation will save a ton in taxes if the spouse has no income.

Sure you can be sued in some circumstances as a director of a corporation but you would have to be breaking the law for it to be successful. Here is Industry Canada’s take on directors liability:

As a general rule, directors are not personally liable for the contracts of, or the actions or omissions of, the corporation that they serve because a corporation is considered to be a separate legal person at law. The liability protection afforded to directors as a result of incorporation is often referred to as the “corporate veil”.

https://www.ic.gc.ca/eic/site/cilp-pdci.nsf/eng/cl00693.html

You can further protect yourself and the retained earnings by using OpCos and HoldCos.

Normally, a company is managed by its directors. And under the old corporate legislation in BC (and throughout Canada, still), it was required that directors be what we lawyers call “individuals” (as opposed to persons, a word which can include corporations); that is, flesh and blood living people. And as every one knows, directors can be held liable for a wide range of corporate offences (unpaid taxes or unpaid wages or bad decisions relating to environmental issues or securities law issues, being typical examples).

But under the new corporate legislation, while flesh and blood directors are still required as part of a corporation, a BC company’s directors are now allowed to delegate some or even all of their management responsibility to any “person” they choose. And in this context, a “person” can mean a corporation. So the directors can offload all of their managerial responsibility, and thus liability, to a corporation.

https://www.incorporate.ca/multi-company-structures

None of that will prevent you from being personally named in a suit, and having to defend. In the real world, limited liability is illusory. — Garth

#78 AB Boxster on 05.10.15 at 10:50 pm

#68 Soaps or Garth
#54 Soaps
____________________
The corporation pays taxes on Net Income
That is all annual income net of expenses.

If you decide take a salary then the corporation pays taxes on income less your salary, as yoour salary is a valid expense.

If you take a dividend then the corporation pays on the full income ( in the example $200,000) less other expenses.
What remains after all expenses including tax, is Retained Earnings.
The dividend is paid out of retained earnings.

Garth is correct.

#79 Sheane Wallace on 05.10.15 at 10:52 pm

If I make 100 k salary and 50 k dividends from Ontario corporation in addition to it, are the dividends taxable?

#80 Smoking Man on 05.10.15 at 10:56 pm

#52 Nacho Cheese on 05.10.15 at 7:41 pm
This one is for you, Smoking Man. I remember someone mentioning the Fermi paradox about aliens, and this link is a cartoon video with a great explanation of it.

There’s got to be something else out there based on the vast number of planets, but the universe is so vast in size that we’ll likely never know for sure.

https://www.youtube.com/watch?v=sNhhvQGsMEc
………

We are here, trust me….

I saw the vid and more from that group…they got it all wrong

I’m a Nectonite.. I really am..

This is how it is.
The shear lunacy of Science and Schooling system that feeds it.

http://dyslexicsmokingman.blogspot.com/2013/11/the-shear-lunacy-of-science-and.html

#81 alex on 05.10.15 at 10:57 pm

#74 Boyd McConnell on 05.10.15 at 10:13 pm
hey, Boyd where in south east asia can you rent a 5 bed house for 300 US?

#82 Arch Douche on 05.10.15 at 11:10 pm

#66 Shawn Allen on 05.10.15 at 9:01 pm
Arch Douche said

There is no magic way to use a CCPC to earn passive income that is taxed at preferential rates (that I know of).

****************************************

Right, if you take out the money as income there is no tax advantage.

There do appear to be scenarios where leaving excess earnings that are not needed for living in the corporation and investing those can lead to tax advantages. If invested in a growing companies that do not pay a dividend (or pay only a small dividend) there could be decades of tax deferred compounding of wealth.

Some on this blog have argued that unrealized gains are not real until sold. That is not the case. Wealth is wealth. It should however be reduced by the taxes that would be paid upon sale.
—————————————————————–

Let’s assume that you earn ABI in a CCPC and invest it in marketable securities that pay no dividends and are held for 20 years vs. earning the income personally and investing those funds in the same marketable securities and held for 20 years.

I agree, there is a deferral as you will have used initial dollars taxed (likely) at the SBD rate of 15% vs. perhaps a higher personal tax bracket. But if you go to rebalance you will ‘realize’ a gain on these investments within those 20 years. 1/2 of that gain will be assessed Part 4 (investment income) tax which has historically been equivalent to the highest marginal rate of personal tax.

Your initial tax deferral and those gained from ABI over time due to the rate differential will be reduced each time a gain (or dividend) occurs because all of the investment income is being taxed at the highest personal rate. You are at best indifferent, but more likely paying tax needlessly as well as incorporation maintenance costs.

The intent of a CCPC is for people to take risks, and increase investment in smaller businesses and grow the economy, not provide a passive income shelter. To the extent ABI is reinvested in ABI earning activities, there is a deferral potential, I agree. If one wants to have another method to save for retirement they can create an Individual Pension Plan, deduct contributions against the income of the CCPC and save for retirement that way. But that is a whole other topic.

#83 AlbertaGuy on 05.10.15 at 11:11 pm

I fit in this category of personal services corporation not out of choice. Employers are shedding full time employees in favor of hiring contractors to obtain a “flexible workforce”. Preferred vendors are used to provide the contract resources and wont deal with Sole Proprieterships so incorporation is only option.

Seems like a no win situation.

This KPMG page seems to put the nail in the cofin. No advantage to corporations for personal services businesses.

http://www.kpmg.com/Ca/en/WhatWeDo/KPMG-Enterprise/StayCurrent/Pages/default.aspx

#84 45north on 05.10.15 at 11:12 pm

Boyd McConnell: I live in Southeast Asia a block from the beach in a five bedroom/3 bathroom house. Cost USD$300/month–also live with my 28 year-old GF–I am almost 62.

well happy almost birthday

Boyd, the name is changed but you’re still a sinner.

http://www.greaterfool.ca/2015/05/01/the-honourable-fsbo-2/#comment-370240

you’re not going to get into heaven anonymously

#85 Rainclouds on 05.10.15 at 11:13 pm

#30 Dave
“In Vancouver, as much as half the dollar value of detached housing sales went to Mainland Chinese buyers last year. Most of the $3 billion poured into the purchase of west-side Vancouver properties last year originated in China”

Dave You may very well be correct however what I don’t get is who are these “Mainland Chinese”

Are they Immigrant Investors? doubtful as that program was halted in 2012. The New program WILL allow total 50 Investors nationally. there haven’t been any immigrant investors for 2 yrs in Van or anywhere else.

http://www.cbc.ca/news/politics/canada-seeks-50-millionaire-immigrant-investors-under-pilot-program-1.2875518

Are they refugees? Not likely if they have enough money to buy homes anywhere close to downtown.

Family Class? Possible

Skilled worker ? probably a few but insignificant amounts

TFW? Doubtful, they aren’t serving donuts if they are buying on Dunbar.

Anybody can own property in Canada but it seems difficult to comprehend why your run of the mill average millionaire who cannot legally live in the most expensive real estate market in the world would tie up their money to be able to walk the Seawall in August every year.

Not getting it.

#86 mother's day USA on 05.10.15 at 11:17 pm

Last Week Tonight with John Oliver:

Two countries in the world don’t provide time off for new mothers: 1) papua new guinea 2) USA

Happy Mother’s Day!

#87 I'll have whatever Elizabeth May is drinking on 05.10.15 at 11:17 pm

Very useful post tonight, shatters some illusions just like the idea that home ownership always ‘builds up equity’.

Garth, I can see why you’re here and not with Harper anymore, you had more class than the whole fkg cabinet.

#88 AlbertaGuy on 05.10.15 at 11:21 pm

corrected KPMG link

http://www.kpmg.com/Ca/en/IssuesAndInsights/ArticlesPublications/TNF/Pages/Personal%20Services%20Business%20Tax%20Hike%20Becoming%20Law%20-%20Time%20for%20a%20New%20Plan.aspx

#89 Give a mortgage to anyone on 05.10.15 at 11:24 pm

The Globe & Mail is running a series of articles on how heavily indebted Canadian individuals are. The first article was printed yesterday.

The article said the total Canadian personal debt is $1.8 trillion of which $1.3 trillion is in residential mortgages.

#90 MBguy on 05.10.15 at 11:58 pm

Looking for an opinion from you Garth or your blog dogs. I am renting a condo for $1600 and have all my cash in financial assets. Thinking of buying a similar condo in cash and then turning around and taking out a heloc for the max 65% and then the rest from my personal Loc to fully refund my investments. At current interest rates and after tax deduction it takes my monthly cost from 1600 to $1125 including prop taxes and condo fees. Downfall is the debt, real estate market risk exposure and the possible raise in rates. Is the risk greater than the reward?

#91 Property Accountant on 05.11.15 at 12:01 am

Re: Soaps or Garth ?????
#45 Property Accountant
#51 Soaps
#54 Soaps
#68 Soaps
#78 AB Boxster

I do not know how AB Boxter concluded that Garth is right but in my opinion Soaps is right. So it happens that I have access to Studio Tax 2015 (free T1 personal income tax software) and Visual Tax 2015 (T2 corporate tax software, not free).

I confirmed the numbers, for a 80K medical doctor’s salary (claim code 1, personal tax exemption) he would be taxed at 20K, probably would get 1K back refund.

In case of Ontario corporation and small business reduction on taxable income of less than 500K federal tax rate is 11%, provincial 4.5%, combined 15.5%. Taxable income in excess of 500K is 26.5% combined for Ontario Corporation.

Garth applied 26.5% active business rate and forgot about small business reduction in his calculations in post #51. So it is $18600 for corporate tax and an average doctor incorporating his practice saves 35K.

Soaps is right.

#92 KPMG spells it out black and white in details on 05.11.15 at 12:05 am

# 88 AlbertaGuy

corrected KPMG link

=====

Thanks, KPMG spells it out black and white in details:

March 11, 2013
No. 2013-07

If you provide your services through a corporation, are you carrying on a personal services business? If so, you will lose the tax deferral advantage that this structure previously offered because a tax rate increase on personal services business income will soon be law.

This change is already generally effective for taxation years ending on November 30, 2012 and later. You will need to evaluate the impact of this tax rate increase on your personal services business and decide what to do with your existing corporation.

Tax rate increase to become law soon
These changes for personal services businesses are included in Bill C 48, a large bill of outstanding technical tax amendments. This bill received first reading in the House of Commons on November 21, 2012 and is currently working its way through the Parliamentary process. We expect the bill to be passed into law soon.

Tax advantages drastically reduced

Previously, carrying on a personal services business meant the loss of certain deductions and a higher tax rate but there was still a tax deferral advantage to having a personal services business compared to earning the income personally. That deferral will be severely curtailed or nearly eliminated as the tax rate increase to personal service business income becomes law.

Not only has the deferral been significantly reduced, but you will now generally pay much higher total tax when income from a personal services business is withdrawn personally.

Personal services business income is subject to a federal tax rate of 28% (up from 15% for 2012) plus the applicable provincial tax rate, effective for taxation years that begin after October 31, 2011. If you have a December 31 taxation year-end, for example, this tax hike applies to your taxation year that ends on December 31, 2012.

Background — What is a personal services business?
Your corporation may be considered a personal services business if you provide services on behalf of your corporation to another company and you would reasonably be considered an employee or officer of the company to which you provide services but for the existence of your corporation.

If your corporation employs more than five full-time employees or it provides services to an associated corporation, it will generally not be considered a personal services business.

A personal services business is not eligible for the small business deduction and the expenses it can deduct for tax purposes are severely restricted. In general, a personal services business’ deductible expenses are restricted to salary and wages paid to an incorporated employee. No deduction is available for costs such as training employees, transportation and advertising.

These rules were introduced to prevent employees from terminating their employment agreements and entering into contracts with their previous employer through their own corporation to obtain tax advantages.

More at the KPMG site.

#93 Dave on 05.11.15 at 12:27 am

#85

“Anybody can own property in Canada but it seems difficult to comprehend why your run of the mill average millionaire who cannot legally live in the most expensive real estate market in the world would tie up their money to be able to walk the Seawall in August every year.”

Because it’s an easy city to buy Real Estate with no restrictions, hence the petition. Their money is safe here.

Once the moneys here they can move it elsewhere at the drop of a dime, which would cause a major problem.

It has nothing to do with them visiting here or ever living here, it’s strictly an investment to them, like a bond would be to us.

#94 lee on 05.11.15 at 1:13 am

If you don’t believe limited liability is illusory for directors, get yourself sued for millions as a director, have no insurance, and see how much money you have left after its all over.

#95 Hickster on 05.11.15 at 1:26 am

Interesting post Garth, but one sided as well. I am in the same boat, but the saving go beyond what you described:

Firstly for ever time you say SP can do the same, be aware medical corps cannot be SP’s (100% government work), no hospital will agree to pay your SP, they want real corp

– Can buy stuff with corp money
– Income splitting with no max
– Do not have to pay into CPP, which will likely not exist or somehow be clawed back from high earners by the time our turn comes
– Do not have to pay into pension plans you have litte control over
– Corp can pay all health/dental expenses without it being a taxable benefit, using health spending account (you pay out of pocket, corp pays you 100% non taxable to reimburse, and an additional 10% to health spending account company to operate the scheme)
– Travel? – find a medical conference there and corp can pay all. You don’t even have to attend. There are even schemes for this now where you can go anywhere and conference just mails you stuff to do distance learning

Last year I paid roughly $15 000 less in tax than i would have on salary, that’s not counting buying stuff through the corp and travel which was probably another $5000. I also invested close to $90 000 more through the corp than would have been contributed though a company pension.

TFSA’s are great but they are all in after tax income. I can invest a heck of a lot more after 12% than after 35-40%, even if the gains of the latter are tax free. 7% per year tax free does not cover the close to 30% per year smaller capital investment.

#96 jeff on 05.11.15 at 1:43 am

Hey garth, you are wrong about this…the client has deferred the dividend tax to get the money into his own hands. I work as a tax advisor at a brokerage firm…the math works in their favor.

Tax deferral is not tax avoidance. — Garth

#97 BS on 05.11.15 at 1:45 am

None of that will prevent you from being personally named in a suit, and having to defend. In the real world, limited liability is illusory. — Garth

Of course someone can try to sue you for pretty much anything. There is no legal precedent for anyone winning such a law suite. When they lose or the suite is thrown out they have to pay both sides attorney fees. The person being sued pays nothing.

#98 NoOneOfConsequence on 05.11.15 at 2:00 am

I find it so very amusing that the majority of folks on here are strenuously trying to use their corp as some kind of tax dodge.

CRA IS YOUR BUSINESS PARTNER. YOU OWE THEM 30%.

JUST AS IF YOU WERE A PARTNER OF ANOTHER COMPANY, YOU WOULD EXPECT PROPER PAPERWORK, AND TO GET YOUR FAIR SHARE.

Now quit your whining and get back to WORK. Try making your corporation successful. Stop wasting time and effort in some kind of tax dodging crap.

Taxes pay for civilization. If you want to live third world – there are planes headed there every day.

Bye. Don’t let the door hit you on the way out. Good riddance.

#99 stage1dave on 05.11.15 at 2:22 am

A timely post; as my 30 yr anniversary “in business” approaches, I’m still comfortable with the sole-prop way of doing things.

I’ve always thought the hassle factor of incorporation outweighed the potential tax savings. As one poster pointed out, the business has “no value” without me (and I say that modestly enuff) & I’m not concerned about the few hundred dollars I’d save by doing more paperwork to actually do it…not to mention making two tax returns, accountant fees, etc.

As most of my work is for individuals or local businesses, I haven’t run into any situations where my lack of incorporation costs me any work loss; so I can’t comment on that.

I can say that it causes some REAL problems with banking, it’s pretty much like “not having a real job” haha. Not having borrowed any money since 1989, I haven’t had to deal with any of their antiquitated attitudes toward self-employed people for over 15 years; but I assume it’s still there.

(“we can’t verify your income”…”we don’t know who these people are that are writing you these cheques”…”we need an statement of income”…in three decades, I’ve had exactly FIVE cheques bounce on me & got stuck with three of them, the grand total of which wouldn’t pay my rent next month)

From my experience, the tax “advantages” are the same as incorporation. As far as day-to-day operation goes anyway; writing off material expenditures, vehicle costs, (run a mileage log) etc. The only rub I ever ran into was trying to pay my wife for her labour as a “subcontractor”; that didn’t work out so well. CRA ruled her an “employee” & I wound up paying her CPP & UIC for three years! No big deal, everything was handled amicably…other than my teeth-grinding when I had to write the cheques.

(My experience with CRA is they DO NOT like family members receiving money if you’re trying to write it off, so I just quit trying)

I can supply one other gem from personal experience: it’s a GREAT IDEA to keep in touch with these tax people, especially if you travel a lot for work, or your income fluctuates. (especially if you’re appealing a “re-assessment” or they’re disputing your version of a capital gain) Allowing their attempts at communication (written, electronic, or phone) to pile up when you’re busy might lead to a seized bank account as that usually gets most people’s attention.

I find the sole-prop thingie just allows me a bit more time to enjoy life & concentrate on things somewhat more important to me, rather than trying wring every last dollar out of some government dept.

#100 Blacksheep on 05.11.15 at 2:24 am

Crowded # 48,

Physics fans…good to hear.

Physics are constant. Physics does not take sides. Physics does not mislead. Physics does not involve emotion.

This collective of 2000 Architects & Engineers are big physics fans too.

“Freefall is an embarrassment to the official story, because freefall is impossible for a naturally collapsing building.”

“In a natural collapse there would be an interaction between the falling and the stationary sections of the building. This interaction would cause crushing of both sections and slowing of the falling section. I have done measurements on several known demolitions, using similar software tools, and found that they typically fall with accelerations considerably less than freefall.”

“Building 7 was not only demolished, it was demolished with tremendous overkill.”

http://www1.ae911truth.org/en/news-section/41-articles/872-freefall-and-building-7-on-911-by-david-chandler.html

You can question human behaviour, but there is no getting around physics.

Don’t overestimate my investment in the topic as ‘the building 7 question’ is used purely as an assessment tool. This whole topic has been long beaten to death, but in the end, it does not change what took place.

#101 Mountain Man on 05.11.15 at 4:57 am

“I actually ran Revenue Canada …”

Quote of the day! Nice to be able to put that on your resume!

And I’m glad Revenue Canada will get their fair share of taxes from the doc. For Chriky sake, the doc lives off taxpayers and then wants to pay as little back into the system?! WTF?! And you wonder why the 99% are so sick and pissed off with the 1%? This is a perfect example.

Pay your fair share of taxes, Jeff!

#102 fred on 05.11.15 at 5:05 am

A New Stockholm To Be Built Within 6 Years

https://www.youtube.com/watch?v=w7IaCcAJQwY

#103 Richardo on 05.11.15 at 6:50 am

My understanding of limited liability for incorporations is that the limited liability is primarily in regard to loans taken on by the corporation. If the company fails the loans are not attributed back to you personally ?

If you personally signed for them, of course. — Garth

#104 Carly in Cabbagetown on 05.11.15 at 6:54 am

#100 fred – “A New Stockholm…..”

I actually watched most of your clip. A pretty stunning, thinly veiled racist rant against immigrants.

At 3:00, it mentioned that the Swedish housing minister was Muslim – relevance?

Then it suggested that Swedish whites would soon have to be giving up their summer cottages and churches so that housing could be built for immigrants (lots more pictures of Muslims)

The past PM was lampooned with a ‘Seinfeld’ motif – anti-Semitic too?

It made a point near the end that the struggle for women’s equality was behind the low Swedish birth rate, and hence influx of non-white Muslims. (how terrible – perhaps Sweden should regress?)

The originator, ‘Red Ice Radio’, has also posted elsewhere online that ‘Hitler was misunderstood’.

————————————————————–

Garth, this was a long video that you may have missed.

But if you allow posts like this on your site, to be consistent you really would have to permit virtually any anti-Asian, anti-HAM nonsense that others have posted here.

This video would make Anders Breivik feel vindicated.

Ugly stuff.

#105 Oot der Hoos on 05.11.15 at 7:51 am

I rewrote #96. I overstate my case the same way #96 overstates the role of the state. I say it to make a point about pure statism thinking, not to be annoying.

96 NoOneOfConsequence on 05.11.15 at 2:00 am

I find it so very amusing that the leftie folks on here are strenuously trying to over-tax the income and next the wealth of corps as some kind of communist utopia.

CORPORATIONS ARE YOUR LIVING SPOUSE. YOU OWE THEM 50%.

JUST AS IF YOU WERE A PARTNER OF ANOTHER MARRIAGE, YOU WOULD EXPECT PROPER PAPERWORK, AND TO GET YOUR FAIR SHARE.

Now quit your whining and get back to WORK for the NAZI SOCIALIST machine. Try making your corporation successful. Stop wasting time and effort in some kind eliminate corporations and tax the wealth crap.

Corporations make civilization. If you want to live third world commie – there are planes headed there every day.

Bye. Don’t let the door hit you on the way out. Good riddance.

#106 mr_raider on 05.11.15 at 8:32 am

Garth I don’t get your point about the corporation ceasing to be active at retirement.

Yes the small business deduction only applies to active business income below 500k, but that rule is in effect throughout the businesses lifetime. Passive investment income is taxed at a higher rate through out the whole life of the corporation, before or after retirement.

From what I have seen earning investment income through a corp, or personally in a non registered account comes to the same. I’m assuming Jeff’s income is well above the threshold to max out his RRSP.

the main advantage of Jeff’s strategy is that it allows him to invest a larger sum in his corp, rather than the smaller sum if he had to pull it out as a dividend.

He is not avoiding tax, but he is deferring it. And the deferred amount is growing until it is pulled out.

Furthermore if Jeff has a spouse, he can split his dividend income with her (which puts the FTC to shame).

Now can see an argument that Jeff take a salary of 68k to max out CPP, or even 120k to max out his RRSP. But an all dividend strategy is quite defendable. Even the bank guys say so:

https://www.cibc.com/ca/pdf/jg-rethinking-rrsps-en.pdf

#107 Shawn on 05.11.15 at 9:01 am

Tax Deferral is a Benefit?

Tax deferral is not tax avoidance. — Garth

***************************************
No, but it is certainly beneficial.

Imagine investing the deferred tax…

The point is not whether keeping money in a corporation rather than paying it out lowers tax, the point is whether it is beneficial and increases eventual after-tax returns. Even if that occurs despite INCREASED eventual taxes, it is still beneficial.

#108 Investorz on 05.11.15 at 9:03 am

An incorporated doctor can pay a dividend to his wife.

No other tax strategy can beat this.

#109 Squatter on 05.11.15 at 9:06 am

#68 Shawn Allen on 05.10.15 at 9:01 pm

There do appear to be scenarios where leaving excess earnings that are not needed for living in the corporation and investing those can lead to tax advantages. If invested in a growing companies that do not pay a dividend (or pay only a small dividend) there could be decades of tax deferred compounding of wealth.

**************************************

You can invest in a growing company that doesn’t pay dividend by yourself, no need for a corp to defer tax that way.

#110 Lotus YVR on 05.11.15 at 9:25 am

#106…Carly in Cabbagetown.
Your rant, wow scares me. Do you really believe that immigrants are entitled to more of everything than everyone else in Sweden. You, I feel are being racist against whites. Shame on you!

End this thread. — Garth

#111 saskatoon on 05.11.15 at 9:31 am

#100 NoOneOfConsequence

“Taxes pay for civilization.”

wow!

stockholme syndrome alert.

seems you got it baaaaaddd.

sorry, but you’ve been tricked, buddy.

ripe, willing fodder for the SM.

your statement is so clearly racist and packed with jealous hubris/privilege…it is almost unbelievable.

according to you, civilized people can’t exist without taxation.

take some anthropology/history courses and wake up.

geesh.

#112 Julia on 05.11.15 at 9:50 am

#79 BS
“Sure you can be sued in some circumstances as a director of a corporation but you would have to be breaking the law for it to be successful. ”

Plenty of times CRA goes after Directors. Don’t remit HST, file the Corporation into Bankruptcy to wipe that liability clean for the Corporation and to the Directors it goes.

#113 Julia on 05.11.15 at 9:51 am

My previous post is just an example. Same for unremitted source deductions.

#114 Julia on 05.11.15 at 10:12 am

#105 Richardo

” My understanding of limited liability for incorporations is that the limited liability is primarily in regard to loans taken on by the corporation. If the company fails the loans are not attributed back to you personally ?

If you personally signed for them, of course. — Garth”

A personal guarantee given to the Bank is different. But Directors cannot escape the CRA. They see through Corporate structures.
I have seen CRA being quite aggressive the last few years.

#115 Ken Nash on 05.11.15 at 10:36 am

CRA insight doesn’t get better. As a small business owner clearing up my TFSA or RRSP anxiety even better. I have one incorporated company (used mainly as a brand) and run all financial activity through my sole proprietorship. Seems to be working okay.

Have a had two CRA events during my years. The first, resulted from a commissioned sales rep, who was fired and apparently behind on taxes. Made the claim they where actually an employee.

CRA performed an audit and determined the sales rep was a sales a rep. BUT! The 6 co-op students, hired each semester and paid $10.00 an hour. Should have had deductions taken off. Something my bookkeeper said wasn’t required. Over the 7 years audited this came to $128,000. I went at paying it off at $1,250 a week, $750 every Wednesday and $500.00 every Friday.

After a couple of months CRA called another audit was being done. I was a bit concerned. Had contacted a tax lawyer who wanted a $30,000 retainer, not happening. So I was at the mercy of CRA.

The audit was performed and few days later CRA called. They where impressed how diligent my payment plan was. As a result, CRA decided to give me forgiveness on the balance! What a great day. The second not so much.

In the same audit I was assessed $76,000 personal income taxes. During an office move somehow the receipts for petty cash had been lost. Parking receipts for 6 sales reps mainly. Adds up over 7 years.

I went at this debt in the same manner, $1,250 a week. The problem was after the first year my taxes owing went up! Unbelievably to $78,000. The payment plan putting me in much higher tax bracket.

Again, Toronto CRA saw the problem, without expensive lawyers just me and put my account put in for forgiveness. Never happened Ottawa just stonewalled. A year went by I was in a bad place. Making payments of $75,000 and ending up with personal income of around $150,000 wasn’t working more owed each year. Catch 22. It had a considerable negative effect on my business.

Then 9/11 happened. Took out my main funding partner and I’d also just done a deal for $280k in office equipment for a company with an office in Toronto and yup the world trade centre. It went bankrupt that week before the deal was funded. Phones stopped ringing went from a million average a month in deals to nothing in one morning.

I blew threw $300k in personal investments in the year that followed. RRSPS, real estate and $90k in life insurance cash value.
Carried my small well paid staff and living expenses. Now my retirement plan is to continue working. One of the reasons I see the Ontario pension plan having merit for many.

My funding partner came back but our business never did. Enron ensured our dot.com business died and manufacturing was being thrown under a bus for real estate construction. Plus I had this year old $280k problem I was trying to make vendors whole on. My funding partner said stop being so stubborn Ken. Here’s the deal, we’ll pay the $280k, it’s a problem we need to account for, you go bankrupt and we’ll get back to work. So I did.

Two people called to my friday creditors meeting. My funding partner asking the Trustee to ask me, “What’s the name of the new company? Looking forward to getting to work on Monday” The other my CRA rep in Toronto with an apology, wish they could have done more and of course the CRA debt was gone.

The moral to the story is it is very difficult for one person to get it right. I think I had it right but a catastrophic event blew me away. I don’t have resentment. The people I’ve found most inspiring where the ones who continued to work when they didn’t need to. Losing my safety net if my health should fail me does. So I quit smoking and have gone vegan. Next is to find something I enjoy doing. Passing Accounts in Estates Court fills me with too much despair. (“My friend! the executor/trustee didn’t sell the house for less than it’s worth, is incompetent and should be removed. TREB numbers are unreliable” as I get the three headed look)

lol Garth, I’m not a religious guy but feel you should be behind a back curtain in church after that confession.

#116 Shawn on 05.11.15 at 11:21 am

Corporations and Tax Savings

Squater responded to me:

You can invest in a growing company that doesn’t pay dividend by yourself, no need for a corp to defer tax that way.

****************************************
I thought the example being discussed was you have a profitable small corporation and it makes more money than you need to spend. Should you pay out the money as dividend or salary and pay the tax, or is it better to invest all that money within the corporation? Can it defer taxes such as by buying and holding stocks for capital gains.

#117 SWL1976 on 05.11.15 at 11:38 am

Good post Garth right up my alley.

I am in the same boat as others here in having to incorporate to get the job. And yes my accounting fees went up and I still pay lots of tax. I do have some investments inside my corporate account, but since I haven’t paid taxes on them yet, that is where I am loaded up roller coaster PM’s in case the terd does hit the fan.

Great to learn here about the tax rate for passive corps as that does not sound fun and will be avoided. One thing that I have done with my corp is use the money and write offs to train myself and invest in myself. Investment in myself through my corp will pay off ten fold in the future no matter how or when I dissolve the corp.

For anyone interested my investment choice for myself was getting into SolidWorks and pursuing mechanical design in a much more modern way, and now this week looking at 3D printers and printing. I’ve come along way from a greasy Millwright making chips in a machine shop

Thanks again for this blog and forum Garth, for I know we don’t always agree at least it’s being discussed.

A simple question for you Daisy, if you would humour me: Why did Building 7 fall?

Building 7 was ‘pulled’ as they say in the demo business as part of a carefully orchestrated plan by the shadow government who runs the US. The reason for this act of terror was to instill fear into Americans and quickly jam through congress the Patriot Act, and to wage a incessant war on a fictitious enemy ‘terror’ to pursue the endless march towards dictatorship and tyranny world wide.

Once the masses can swallow that pill we might have a chance at steering the ship in a different direction, but until then… Probably more of the same

#118 Retired Boomer - WI on 05.11.15 at 11:49 am

I never wanted to ‘own’ a business. I saw my folks do that twice. They did well, but time is one commodity in short supply there. I worked for people, and worked like I ‘owned’ the business, you get paid well, and they tend to keep you. The headaches were mostly theirs to own.

Choices.

Taxes. Merely the cost of our respective societies. I would prefer less military spending, more on other social items, but first – Balance the dam budgets!! Then reasses

Yes, minimize taxes by all legal means, take advantage of those tax free, tax deferred offerings. Pay the bank as little as possible (interest).

I use a CPA to do tax prep, and planning. Much one can do to plan for a minimum tax impact in future years, as well as estate planning. Yeah, you will not escape that fate my fellow travelers. Money well spent here.

#119 Pre-Retiree on 05.11.15 at 12:03 pm

#60 Still waiting
Isn’t income splitting one big potential tax advantage to the corporate option? As I understand it, a non-working spouse or a non-working adult child (eg a university student) can take about 40,000 annually in dividends and pay virtually no tax. That strikes me as a big advantage – am I missing something Garth? Thanks.
________________________

I believe you are correct. Giving dividends to non-voting shareholders, such as children over 18, and low-income spouses is a hugh advantage of a corporation.

#120 Squirrel Meat on 05.11.15 at 12:19 pm

http://www.theglobeandmail.com/news/politics/elizabeth-may-very-apologetic-about-omar-khadr-remarks/article24362772/

Transport Minister Lisa Raitt intervened and attempted to persuade May to end her speech, but instead, May played a recording of “Welcome back Kotter” — a theme song from a 1970s sitcom — and stated that Khadr has “more class than the whole f—ing cabinet.
————————————————-
Wasn’t someone playing welcome back Kotter on here the other day! Does Elizabeth May post here!!?

#121 Squatter on 05.11.15 at 12:20 pm

#118 Shawn on 05.11.15 at 11:21 am

Corporations and Tax Savings

Squater responded to me:

You can invest in a growing company that doesn’t pay dividend by yourself, no need for a corp to defer tax that way.

****************************************
I thought the example being discussed was you have a profitable small corporation and it makes more money than you need to spend. Should you pay out the money as dividend or salary and pay the tax, or is it better to invest all that money within the corporation? Can it defer taxes such as by buying and holding stocks for capital gains.
——————————————-
I’m not a tax expert, but from what I’ve read on this thread, keeping profits in the corp is a tax deferral like a RRSP, except the corp is taxed on its income, so it defeats the purpose, because the RRSP advantage is that it grows tax-free.

#122 taxguy on 05.11.15 at 12:47 pm

Here’s another factor to consider – if you’re an Alberta resident and you earn investment income through a corporation (i.e. income that doesn’t qualify for the small business rate), with the corporate rate going up to 12% and the personal rate remaining at 10% on your first $125,000 there’s now 2% tax leakage by using a corp. In fact, if the NDP leaves the Alberta dividend tax credit unchanged, there will be tax leakage on all forms of income earned through an Alberta corporation.

#123 What about CMHC? on 05.11.15 at 12:54 pm

#100 NoOneOfConsequence

“Taxes pay for civilization. If you want to live third world – there are planes headed there every day.”

Fantastic words. Great advice! Work hard, pay taxes and be happy.

#124 On Topic on 05.11.15 at 1:01 pm

http://www.theglobeandmail.com/report-on-business/policy-makers-in-a-bind-over-canadas-two-speed-housing-market/article24359423/

#125 Nagraj on 05.11.15 at 1:09 pm

#117 Ken Nash: one of the most interesting posts on this blog.

When Nagraj got his tax bill this year, Nagraj had 3 reactions: 1) I instinctively strangled the tax accountant. Told the sec he had a heart attack.
2) I got in touch with the Venezuelan mafia. My name is now Madurino. Cute.
3) I put up a sign: Dear needy fellow Canadian people, yas kin all starve to death here in the ditch in fronna my abandoned house as long as yas don’t make any noise cuz if yas gits into moanin and wailin the neighbours’ll call pest control to remove you. Do try and die quietly.

Tax bill killed my social conscience.

#126 On Topic 2 on 05.11.15 at 1:21 pm

http://www.theglobeandmail.com/report-on-business/economy/a-taste-for-risk-looking-into-canadas-household-debt/article24359445/

#127 Ralph Cramdown on 05.11.15 at 1:24 pm

#113 saskatoon — #100 NoOneOfConsequence “according to you, civilized people can’t exist without taxation.”

No, that’s not what the OP said. What WAS said isn’t a contentious position, check Public Goods, a standard and well-studied concept in economics.

Are there modern (i.e. ‘civilized’) societies that don’t tax but that provide the basic trappings of civilization (e.g. law and order, public sanitation and health, protection against fouling of the common environment, common defense)? If so, is their lack of taxation of residents facilitated by taxation of outsiders (i.e. tax havens)? Inquiring minds want to know.

#128 -=jwk=- on 05.11.15 at 1:28 pm

#60 Still waiting
Isn’t income splitting one big potential tax advantage to the corporate option? As I understand it, a non-working spouse or a non-working adult child (eg a university student) can take about 40,000 annually in dividends and pay virtually no tax. That strikes me as a big advantage – am I missing something Garth? Thanks.
________________________

I believe you are correct. Giving dividends to non-voting shareholders, such as children over 18, and low-income spouses is a hugh advantage of a corporation.
———————————-

Only in lieu of salary, and that difference (after 2013) is trivial. Eligible Dividends are paid out of money the corporation (that’s you!) already paid tax on. There is no win there. And if the corporation didn’t pay tax on the income used to pay dividends, the receiver counts it as regular income, no dividend tax credit.

I am just amazed that people think it is so easy to trick CRA. It isn’t. You pay. You always pay.

#129 johnk on 05.11.15 at 1:34 pm

Taxes are the price we pay to live in a civilized society. Yes, there’s waste (see Duffy, M.) but less than right-wing hacks claim. I lived in SE Asia, too. The only tax was 7% sales tax and most biz was done in cash. How nice. Don’t expect much in the way of services like road maintenance, rubbish collection, public libraries, parks, public education and public health care. Offialdom is terminally corrupt at every level and simply ignore anyone who doesn’t want to grease the palm. Police don’t solve or mediate disputes. They show up after the shooting. I sold up (I was 67) and came home because it was dog eat dog and not a place to grow old in.

#130 Rational Optimist on 05.11.15 at 1:49 pm

122 Squirrel Meat on 05.11.15 at 12:19 pm

“Wasn’t someone playing welcome back Kotter on here the other day! Does Elizabeth May post here!!?”

I thought that the ‘Welcome Back, Kotter’ theme song was hilarious. Doubly hilarious for me was her excuse- “21 hour work day” and “sleep deprivation.” Very lame, but I wonder what Mr. Khadr thinks of it. I bet he knows a few things more about “sleep deprivation” than Ms. May.

#131 Blacksheep on 05.11.15 at 1:54 pm

Excellent choice of topic today Garth.

Thanks.

#132 cramar on 05.11.15 at 1:54 pm

There is one legitimate way of avoiding paying taxes that most people will not accept. The goal is to have high next worth vs. yearly income. I learned of this in Thomas Stanley’s The Millionaire Next Door. The idea is to pay little tax in relation to net worth, since you are taxed only on income and not accumulated wealth. The table he listed which includes billionaire Ross Perot, was telling. At the time (20 years ago), Perot paid 0.8% of his net worth in yearly tax. How much do you pay?

It works like this. Average professional couple with combined $200k+ income and little net worth due to their conspicuous consumption lifestyle pay a lot of tax compared to their net worth. That is because they might typically have a $700k mortgage, lease two high-end foreign vehicles, send kids to private school, etc., but little net worth. Stanley calls these people UAW (Under Accumulators of Wealth). I call these people HILOWs (High Income LOw Wealth). In Texas they call ’em “big hat, no cattle”.

Compare this to a couple who are retired with $60k combined income, own a modest home in a small town, have no debts, and many hundreds of thousands in investment savings. They pay little tax in relation to net wealth, since they only have a modest income.

The key is live frugally and simply for your working life, and save much. You will have high net worth and low taxes. It’s what you have and keep that counts, not what you earn.

#133 bob on 05.11.15 at 1:58 pm

Garth, you are again over-sensationalizing your blog… which is okay, because it gets people to read and discuss, and you’ve now suckered me into responding.

Garth is correct on this front:
– the tax code is integrated, so in theory, the taxes paid should be the same
– many of the things you do in corporations can be done as a sole-proprietor
– owning a corporation does means higher costs with regards to fees for advisers, accountants, lawyers, etc
– a corporation isn’t a ‘windfall tax avoidance’

BUT, the biggest benefits of a corporation is flexibility to arrange your finances. (aside: in order to realize these options, you’d need to have a certain threshold e.g. 40K/year, that you save in the corporation). Examples of flexibility:

* greater flexibility in income splitting
e.g. paying a stay-at-home spouse dividends
if they have no other sources of income, that’s a windfall, near-free income splitting
you can’t do this with any other scheme other than RRSP spousal contribution

* flexibility in tax deferral
– many other posters already mention this
– e.g. work part-time hours, take year off
– options to work / earn income to keep corporation active

* greater options to ‘optimize’ different scenarios, e.g.
. CCTB
. health spending accounts vs typical group insurance
. opt-in vs opt-out of CPP
. greater range of estate planning options, including life insurance schemes

* choose your optimal tax bracket

* choose an optimal blend of salary vs dividends

* BTW, fees are over-rated
you stil need an advisor, accountant, lawyer if you are a sole-proprietor
just that things are simpler and cheaper, but not zero

#134 Holy Crap Wheres The Tylenol on 05.11.15 at 2:00 pm

#75 Smoking Man on 05.10.15 at 10:03 pm
I love reading the wide array of opinions on here, twitter, and any other venue where people can conceal there real identity. And really let it all hang out.
When baby’s are born, its brain is like a freash computer out of the box, doesn’t know shit.
Its at the mercy of its programming, or programmer’s.
You grow up in Gaza, your ideas and opinions are going to be a polar difference than the kids growing up in Israel.
Fortunately for me, a learning disability as kid prevented me from being shape shifted.
But strip out the programming what do we all want..
The same damn thing.
Our methods and tactic’s to achive that hoal are based on our programming.
____________________________________________
Blame the parents first for shaping your identity. They are your biggest influences in life. Family involvement is huge when it comes to developing who you are as a person. This is sometimes good and sometimes bad. While spending a lot of time with your family may keep you in a close family and prevent you from getting into bad things like drugs and drinking, it could also inhibit your ability to make new friends outside your family. While family isn’t always a good influence, it generally is. More times than I can count I’ve heard people say that the don’t want to be like their parents, and then they drift closer and closer to being “that person” as they grow up. Whether we like it or not our family is a major part of our development. While knowing things about your parents could potentially shape you, their past will shape you regardless of whether or not you know their full life story. Their past influences you because it changed your parents and they will raise you.
Second biggest influence in your life is culture. The social environment includes many factors that impinge on development, from bonding and competitive stress to the social facilitation of learning. These can affect brain functioning in many ways, but usually they have no direct influence on functional brain architecture. However, symbolizing cultures own a direct path into our brains and affect the way major parts of the executive brain become wired up during development. This is the key idea behind the notion of deep enculturation… This process entails setting up the very complex hierarchies of cognitive demons (automatic programs) that ultimately establish the possibility of new forms of thought. Culture effectively wires up functional subsystems in the brain that would not otherwise exist.”
How do I know this stuff Smoking Man?
My schooled educated brain manipulated sheep mentality daughter is just a doctor whom handles patients ABI issues. However in her studies she also did a stint on the upbringing of children relating to different class, ethnic, scholastic and cultural environments. She also did a stint on Dyslexia and how to help people cope with it. Obviously if you are Dyslexic, you have adapted and are using your own acquired skills to manage accordingly. So kudos!

#135 Blacksheep on 05.11.15 at 2:05 pm

SWL # 119

“as part of a carefully orchestrated plan by the shadow government who runs the US. The reason for this act of terror was to in still fear into Americans and quickly jam through congress the Patriot Act, and to wage a incessant war on a fictitious enemy ‘terror’ to pursue the endless march towards dictatorship and tyranny world wide.”
—————————————
Now…I enjoy a good conspiracy as much as the next nutbar, but try to avoid this type of bold public statement.

It’s not that I necessarily think you are incorrect, it’s just that everything stated above is based on opinion and you know what they say about opinions. I tend to address the low hanging fruit, the Physics based and thus provable talking points. The reason we share these deceptions on public forums / blogs is to get people thinking for themselves.

If we ask them to take to large a leap, they will discount us immediately.

These people are the innocents….baby steps are required.

That’s the thing about challenging, ‘official stories’ you don’t need to explain (or know) exactly what happened or why it happened, you only need to display that Physics involved, do not support, the ‘story’ as presented.

Thanks for the response.

#136 HD on 05.11.15 at 2:32 pm

@SWL1976 @Blacksheep

https://www.youtube.com/watch?v=xnYT5Fp6w_M

“Why conspiracy theories are rational to believe”

Great 13 minute conversation if you guys are interested.

Best,

HD

#137 happity on 05.11.15 at 2:34 pm

Of course the small guy is taxed one way or the other if he stays within Canada.

With a minimum net or Corp worth, offshore everyone knows that.

#138 Greg Jones on 05.11.15 at 2:46 pm

As a CA CFP CLU working for an accounting firm, there are still a few insurance strategies that can capitalize on tax reduced ways of winding down corporations.

In fact, while revenue Canada has identified the potential exploits, it has remained a cat and mouse game.

Case in point, the 10/8 strategy that was eventually crushed by RevCan. Then changed to 9/7 then a few court battles before CRA eventually won.

There are still strategies that are being enabled and grandfathered until the end of 2016 and I’m willing to bet there will be more.

For the general incorporated person I will agree these strategies may not be ideal since it is ideally situated for those that can net well into the 6 figures (doctors that specialize). That said, to say CRA has every possible advantage on lock down is not true.

#139 Lillooet, BC on 05.11.15 at 3:01 pm

#86 45north on 05.10.15 at 11:12 pm
Boyd McConnell: I live in Southeast Asia … Cost USD$300/month–also live with my 28 year-old GF–I am almost 62.
well happy almost birthday

“if you thought you … Viagra-reliant …

Isn’t Garth the new prophet?

#140 AB Boxster on 05.11.15 at 3:08 pm

#93 Property Accountant
_______________________________
Here are my numbers.
Difference between taking a Salary or a dividend from a corporation:

Please explain where they are wrong:

A corporation has $200,000 gross income.
(assume no other expenses than salary and tax.)

CASE #1
Doctor Tax
Doctor Takes a Salary of $80000 from his company.
Total to CRA from doctor : $23,400 (Tax plus CPP, EI)
Remaining in Doctors hands : $56,600

Corporate Tax
Corporation Net Income (after salary, and CRA) $200,000 – Gross Income
less $80,000 – Salary Expense paid to doctor
less $3400 – CRA remittance for employee
Net Income: $116,000

Tax on Corporation (use Alberta as an example)
Combined Alberta and Federal Tax (14%)
$116,000*.14 = $16,250 Tax

CASE #1 Summary
In Doctor pocket – $56,600
Remaining in Corporation – $99,750 (116,000-16,250)
Combined Total in Doctor and Company – $156,350

CASE #2
Doctor Takes an $80,000 dividend.
Corporation Net Income – $200,000

Doctor Tax
$80,000 dividend
$10,000 Com Fed and Prov Taxes on dividends
Remaining in Doctors pocket after Tax: $70,000

Corporate Tax

$200,000 Net income
Tax on Corporation (use Alberta as an example)
$28,000 – Combined Alberta and Federal Tax (14%)

Remaining in Corporation:
$200,000 Original Income less $80,000 Dividends to doctor less $28,000 Corporate Tax
Remains in Corporation – $92,000

CASE #2 Summary
In Doctor pocket – $70,000
Remaining in Corporation – $92,000
Combined Total in Doctor and Company – $162,000

CASE #1 Total :$156,350
CASE #2 Total :$162,000

The only difference is the amount paid in CPP and EI to CRA when you take salary.
Upside is about $5000.
The downside is no CPP and no RRSP contribution room if you take dividend.

#141 45north on 05.11.15 at 3:57 pm

something new:

A number of American studies confirm that the most efficient way for traffic to get through lane reduction chokepoints is for vehicles to fill all lanes until the actual merge point, then alternate to get through the reduction.

http://ottawacitizen.com/news/local-news/tom-new-zipper-merging-is-rational-not-rude

makes sense to me

#142 Blacksheep on 05.11.15 at 4:15 pm

HD # 138,

The phrase ‘conspiracy theory’ is a misnomer from the start.

con•spir•a•cy:
A secret plan by a group to do something unlawful or harmful.

the•o•ry:
A supposition or a system of ideas intended to explain something.

These two words are a subject to the human condition.

Replace conspiracy theory with: ‘Physics analysis ‘ Physics laws are constant. There is no right or wrong, there is simply undeniable, mathematical fact.

Thanks for the video.

#143 Steve on 05.11.15 at 4:15 pm

“However money invested inside a small business is fully taxed at the business rate – less than the personal one, however taxed nonetheless. ”

Isn’t it true that capital gains/dividends/interest resulting from investments within an active business corporation is NOT considered active business income and therefore taxed at 46% with refundables occuring when dividends are paid out to shareholders?

#144 harden on 05.11.15 at 4:16 pm

funny ‘news’ article tells us how to overcome bidding wars here in Vancouver (in face of the all-cash offers with bank draft attached and no inspections/conditions, we’re told it’s a good idea to have your ducks in a row with lender’s pre-approval documentation LOL)

http://bc.ctvnews.ca/overcoming-bidding-wars-how-to-compete-in-vancouver-s-red-hot-housing-market-1.2365530

#145 Holy Crap Wheres The Tylenol on 05.11.15 at 4:18 pm

Holy Crap its back! Pray tell bidding wars Amerika style!
http://www.msn.com/en-us/money/realestate/us-homebuyers-are-facing-a-tough-spring/ar-BBjAX4s

#146 Preacher on 05.11.15 at 4:25 pm

I like it! Good Post.

#147 waiting on the westcoast on 05.11.15 at 4:26 pm

I am up in Whistler for some needed downtime and chatted with an American who said watch asset bubbles reinflate in the US. He said housing is really ramping up price wise. He said the US has screwed itself in the long run. “How are we going to unwind the printing presses from the past 8 years???”. Interest rates will have to rise significantly and it will pummel the economy…

House flippers are doing well in the US… Although lowest volume since 2011… But with extra $$$ being made

That said redfin is predicting a drop in prices as the US raises rates this year…

http://www.cnbc.com/id/102646527
http://www.cnbc.com/id/102655216

#148 saskatoon on 05.11.15 at 4:37 pm

#129 Ralph Cramdown

for one thing…”civilized” does not equal “modern”.

for second: just because because you say something is “well-studied” doesn’t make it correct–or even real.

lastly: the “basic trappings of civilization” need not be created through violent, forced governmental taxation.

yours is a logical fallacy:

i.e., just because most government’s today force wealth from people…doesn’t mean that this practice is ethical

…nor does it mean that it is the only way to create “civilization”.

expand.

your.

mind.

#149 Oot der Hoos on 05.11.15 at 4:58 pm

To #125 and #100 and other socialists/communists/athiests.

Taxes discourage production.

Garth North wrote about it and so did Samuel and Jesus told a parable.

The whole article is an excellent understanding to get you away from your fear of lack, and fear of incivility, from paying less taxes. Rather, fear the increasing ungodliness.

https://www.lewrockwell.com/2015/05/gary-north/taxes-discourage-production/

*******
A few excerpts:

They heard of the nations around them, and they were told that these nations had strong central governments.

The system of civil rule in Israel at this time was based on decentralized tribes.

His warning came in the form of a threat.

We take away two lessons from this. First, people who are in ethical rebellion prefer tyranny to liberty. This came as no surprise to Samuel, for God had told him that this would be the case.

And the Lord said unto Samuel, Hearken unto the voice of the people in all that they say unto thee: for they have not rejected thee, but they have rejected me, that I should not reign over them.

#150 Tornado Bob on 05.11.15 at 5:14 pm

A lot of ‘ employment agencies’ ( head hunters etc) that place professionals within corporations for contract work advise the client to incorporate for the sake of collecting their paycheques. The ones that have approached me for advice have received the same full tilt ‘Don’t Do It’….that you have offered….

Incorporation is to invite chaos into a contractors life. I can’t understand for the life of me why so many doctors, dentists and airline pilots fall for every zany tax avoidance scam that comes along.

As you said….”Don’t trust” someone who is selling a product or position for personal gain. Go to a tax accountant and pay the rate for professional advice…which agents are not qualified to give.

#151 Blacksheep on 05.11.15 at 5:32 pm

Steve #145,

“Isn’t it true that capital gains/dividends/interest resulting from investments within an active business corporation is NOT considered active business income and therefore taxed at 46% with refundables occuring when dividends are paid out to shareholders?”
——————————————
That’s what my anal CGA told me also.

This blogs awesome….

If you wait long enough, eventually somebody asks your questions for you.

#152 crowdedelevatorfartz on 05.11.15 at 6:39 pm

@#23 North Burnaby

Deleted
+++++++++++++++++++++++++++++++++++

Home ownership and your neighbors getting to you N. B.?

Want to HAVE your cake and EAT it too?

My my and I just thought you were a greedy fool.

I was wrong

You’re a racist greedy fool.

Time for a walk around Metrotown Mall. Get used to it.

#153 Entrepreneur on 05.11.15 at 6:51 pm

We thought Elizabeth May of the Green Party was funny but her humour did not go over so well. She should have practiced with a few friends.

It is hard running a business when the CRA is silently over your shoulders: making sure you have the receipts with the right date, printing the correct amount down, adding the list at least three times or more. One big constant, nagging headache to be on the mark. Until on a commercial a scanner for businesses which helps with the receipts. Would have made paperwork easier but might get one for the house paperwork.

Small businesses should be getting all the help that they can and the government has the power to do so. Also, should avoid straggling our youth into the housing market with huge debt because that youth could have been a potential entrepreneur.

#154 Boyd McConnell on 05.11.15 at 8:28 pm

#83 alex on 05.10.15 at 10:57 pm
#74 Boyd McConnell on 05.10.15 at 10:13 pm
hey, Boyd where in south east asia can you rent a 5 bed house for 300 US?

– See more at: http://www.greaterfool.ca/2015/05/10/the-bomb-2/#sthash.XyZNQ38j.dpuf

I am in Hoi An, Vietnam. Last year in Da Nang, Vietnam, but that was USD450/month for a 2nd floor apartment across from China Beach.

Check out www.http://hoianhouse.com/

#155 damien on 05.11.15 at 10:35 pm

“So the Tax Act imposes an income tax rate on a passive corporation that equals the top marginal rate paid by an individual – which these days is roughly 50% in Ontraio. That means all investment income earned is treated the same as if it has been in the hands of the owner. ”

That’s call integration, but am I wrong by saying that keeping the money in the company can make the money grow faster?

#156 Steve on 05.12.15 at 10:25 am

@ #157 Damien

Integration’s purpose is to prevent double taxation and equalize corporate and personal tax rates.

The fundamental basis is that investing in either a corporate or personal capacity should not result in less tax paid.

Yes you are wrong and no you are not wrong by saying it will grow faster.

Consider that if you invest in your small business, it will be money that’s only been taxed at the small business rate. If you invest in a personal capacity, you would first have to pay a higher tax on income you receive from your business prior to investing it. In that sense you are correct.

However, investment income in a corporation is usually taxed at close to the top personal rate, and the corporate receives offsetting refunds when it pays shareholders dividends.

Bottom line – investing in a small business usually has no advantages, but possibly disadvantages such as jeopardizing your eligibility for small business capital gains exemptions and exposure to creditors. Typically the use of a holding company is preferrable if you MUST invest in a non-personal vehicle.

#157 Hickster on 05.12.15 at 1:43 pm

#100 NoOneOfConsequence

This attitude is irrelevant, and just ignorant. CRA is not my business partner, all they do is incur me costs. A business partner actually helps you run your business.

People with your perspective are, invariably, also the same ones complaining about finding a family doctor, waiting in ER, waiting for surgery etc. You perspective is EXACTLY what exacerbates this problem. Fine don’t want us earning here? We can leave to the US and you can wait longer.

We are on the government benefit because that is the ONLY LEGAL OPTION in this country, genius. Most if not all of us would gladly go private. In the US btw, I would earn roughly double AND pay less taxes. So if you want us off government payments, I would earn a great deal more…..yes please.