# Personal Tax Implications - Withdrawing funds from a corporation -



## Koralama (Jan 14, 2011)

I am new to this forum and have a question that may have already be answered here but I have so far been unable to find it.

I set up a corporation in 2010 with 2 other partners (we are each 33% shareholders). We generate an income from selling assets of businesses and make commissions with each sale. After each sale, we withdraw the funds to our personal accounts. We have very little expenses in the business and we cover those expenses with some of the commissions we make and withdraw the rest equally. We each probably withdrew about $65K from the business in 2010.

The question is this: What is the best way to account for the withdrawal of the funds to reduce the personal tax we will have to pay? Assume that we make no other income than this $65K. The corporation makes $0 as we withdraw all the earnings after paying the expenses.

Would the income we withdraw be considered self employed income? Can we write off part of our living expenses like our cars, mortgage, cell phone, etc. if we used them for business purposes but do not account for them in the corporation?


Any help would be greatly appreciated!!


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## kcowan (Jul 1, 2010)

One CRA ruling comes to mind. They ruled that all valid business expenses should be paid by the company and did not allow them on personal returns. So you might consider having the business pay for all your expenses rather than generating a profit.


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## Square Root (Jan 30, 2010)

How is the corp capitalized and how is the money withdrawn? Divs, salary, return of capital? Are you an emplyee of the corp?


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## Koralama (Jan 14, 2011)

Square Root said:


> How is the corp capitalized and how is the money withdrawn? Divs, salary, return of capital? Are you an emplyee of the corp?


I am a 33% shareholder, a director, secretary & treasurer that is withdrawing a third of all the income generated from the corporation. Right now, since we just started the corp in early 2010, we have not declared how we are withdrawing the funds. We are all just transferring the income (after expenses) from the corporate account to our personal accounts. This is basically the question....we can call our withdrawals whatever we want, I just am curious to know which one would be most beneficial to us from a tax standpoint so we pay as little as possible.


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## GrossmanCGA (Feb 10, 2011)

*Confirm with your accountant, but....*

If you don't need any more employment income to qualify for RRSP contributions, EI, etc. then the lowest tax scenario is usually to recognize all the income in the corporation and then pay out the remainder as dividends to the shareholders. At the amount you describe, the dividends likely will come to you at no or low tax.

But only your accountant can crunch the numbers for your individual situation. You should use one anyway for the corporation tax return, if only because with 3 shareholders you don't want to be the one who made a mistake on the tax return...

Feel free to contact me to discuss further, if you wish.

Best regards,

Eric


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