Pulling Money Out of a Corporation: Yes or No

[eulogy]

I can get the money out without the tax being withheld. I technically have to pay CPP on it (not EI), but my CPP/EI are both maxed out earlier in the year.

I realize that putting it in an RRSP is deferring the tax, but I'm okay with that since it should be deferred for probably a good 40 years. Honestly, I don't have anything else to do with the cash in the corporation. At the end of the day we're talking about literally a percent or two. I'm not making the big bucks to really make a big difference either way.

All I know is that there is a slight tax advantage taking the money out as income vs dividends for what I plan to use it for. And in my particular case I won't be paying CPP (don't have to pay EI).

... but the other way to look it is that I plan on maxing out my RRSP anyway, so whether I put money from a corporation in the RRSP or leave it outside is irrelevant because I will have paid the 32% in taxes on other earnings. Maybe I need a "big picture" perspective looking at things over a few years. Maybe it's in my best interest to pull all corporate income out at the end of the year, pay my taxes (personal) once and be done with it. Instead of eating the 14% corporate tax, deferring my personal income tax on it and possibly end up in the position of taking it out at 32% (41.5%) or even a lower bracket like 25% (35.5%). Or the same equations at non-eligible dividend rates.

I guess I just need to crunch the numbers.

[Homerhomer]

I can get the money out without the tax being withheld. I technically have to pay CPP on it (not EI), but my CPP/EI are both maxed out earlier in the year.

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If your cpp is maxed out from another source (employment) it doesn't affect your witholding from the corporation, the two are independent and if you draw in such a way that requires witholdings, CPP must be witheld by your corp, on the personal side you will get it back when filing personal taxes, but your corporation is out of pocket.

That's why I said to charge the consulting fee and claim it on your personal taxes, if you are charging less than 30K you can do it without charging GST, if you charge more than that then you have to register for GST personally.

[eulogy]

That could have been what was done. I have taken money out without withholding. My accountant must of did it that way.

And it's 30k for GST. I thought it was 25k. Either way the only amount I'd probably take out is $5k-10k a year.

[TaxGuy]

If you're a dividend investor, one thing to consider is to invest within a corp. The money is only taxed 15%, so you have a higher capital base to invest with. You can then flow through the eligible dividends to the shareholder and the corp will not owe any tax. The result is a greater income stream than if you were to withdraw the cash first and invest personally.

When a private company receives a dividend from a public Canadian company, there is a refundable tax of 1/3 of the dividend received. When the dividend is paid out, the refundable tax is returned and effectively there is a straight pass through of the dividend.