# Paying dividends to my College kids...???



## steakman (Jul 22, 2012)

Since getting back to work this past February, I have decided to help out my two kids in college by paying them some dividends. 

Both are full time students in College.
Both own Class D non voting shares. My spouse owns Class B share and I own Class A shares...both voting.

As such, I do believe that by making a declaration signed by both of the Directors of the company (Spouse and self), we can direct said dividends to only the D class shares (equally), that the kids own. Seeing as both are full time students without any income, they then would not be subject to any personal income taxes as well.

If what I believe above is true, then what rate of taxation are these dividends taxed at if at all.??

How does one account for these monies in a monthly/annual journal or P/L statement.? I do not believe that they can be considered 
expenses right.?


thanks a bunch.!
stk


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## Homerhomer (Oct 18, 2010)

Yes, you can pay the kids dividends as long as they are 18 or older, your shares set up is correct.
Tax will depend on how much you pay them and where you are, in your books you will debit equity account called Dividends, and credit cash if you are paying cash or shareholder account if you are just declaring the dividends and then draw cash out of shareholder account later on. Dividends are not expenses.


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## steakman (Jul 22, 2012)

Ok Good stuff.

1 is 19 and the other soon to be 23.

So lets assume I am going to pay them $12,500 this year ea. What are the tax implications for the company? I suppose that will depend upon gross profit yr end.?

As well, are there tax implications for the recipients? .. Neither of which will have a large amount of income that is taxable - maybe $1500-2000 ea over the summer... if they get off their collective (_i_)'s ?? lol (they get nadda from me during summer time. Bank of mom n dad is closed for summer vacation and only re-opens upon them being back at college.!)

stk


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## Homerhomer (Oct 18, 2010)

Dividends don't reduce profit of the corporation so the tax owing doesn't go down if you pay dividends (except in certain situations, ei corporation has dividend income etc). Your kids will have not tax owing.


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## Charlie (May 20, 2011)

you should review this with whoever does your corp taxes and dummy up some returns.

your kids won't pay tax on those amounts. But they will lose their tuition credits which could otherwise be transferred to a parent or carried forward. The ordering of deductions requires them to apply the tuition and education credits before the div tax credit. You can plan around this depending on how much you intend to give them....

For a $12500 div with $2K other income, kids will have approx $17K taxable income. Personal credits take care of about $11K, so you lose $6K of tuition credits that would otherwise be worth about 20%. Lost benefit of $1200. Not a bad deal...but you may be able to do better...


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## Homerhomer (Oct 18, 2010)

Charlie said:


> Personal credits take care of about $11K, so you lose $6K of tuition credits that would otherwise be worth about 20%. Lost benefit of $1200. Not a bad deal...but you may be able to do better...


Great point.


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## atrp2biz (Sep 22, 2010)

Must also consider if the dividends are eligible (coming from GRIP) or non-eligible.


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## NorthKC (Apr 1, 2013)

Consider also setting up a bursary program in your company. It would be a direct write-off to your company and tax-free income to the kids (as long as they're in school full-tim). See an accountant if you want to go that route to ensure that the program is set up right.


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## dogleg (Feb 5, 2010)

I'm not trying to change the topic here but have a somewhat related question. If I want to transfer money to my kid but wish to retain control of it can I do it through an account that requires three signatures - mine , my wife's and the child? And how would CRA treat such an account? Would ownership be considered as thirds or would the source of the money be the one taxed?


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## marina628 (Dec 14, 2010)

We had our accountant look at this a couple years ago and in the end she advised us looking at the big picture we should just pay her a normal paycheck as an employee .We were paying our daughter $17,000 a year and after personal exemptions and school credits it resulted in her getting all her income tax back.


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## MoreMiles (Apr 20, 2011)

dogleg said:


> I'm not trying to change the topic here but have a somewhat related question. If I want to transfer money to my kid but wish to retain control of it can I do it through an account that requires three signatures - mine , my wife's and the child? And how would CRA treat such an account? Would ownership be considered as thirds or would the source of the money be the one taxed?


You should first write a cheque to your kid. Your kid deposits into his or her personal account. After the fund is cleared, your kid then transfers / writes a cheque to your joint account.

If you deposit it directly to your joint account, CRA may treat that dividends to your name because you are also an account holder. However, if the money makes that trip, the significance of that money is different now.

You do run the risk of your child refusing to transfer that money back to you... then just threaten him that you will leave him out of the will if he does not. :chuncky:


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## OhGreatGuru (May 24, 2009)

dogleg said:


> .... If I want to transfer money to my kid but wish to retain control of it can I do it through an account that requires three signatures - mine , my wife's and the child? ...


Better talk to your bank first. I was under the impression that dual-signature cheques are limited to business or association accounts - not personal accounts.

There is also some discussion on the web to the effect that banks don't really take much responsibility for enforcing dual-signature cheques, because the requirement is merely a policy of a business or association, not a legal requirement. 

And lastly, from a tax point of view, a gift is a gift is a gift. IMHO if you retain control of it, it is not a gift.


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## MoreMiles (Apr 20, 2011)

OhGreatGuru said:


> Better talk to your bank first. I was under the impression that dual-signature cheques are limited to business or association accounts - not personal accounts.
> 
> There is also some discussion on the web to the effect that banks don't really take much responsibility for enforcing dual-signature cheques, because the requirement is merely a policy of a business or association, not a legal requirement.
> 
> And lastly, from a tax point of view, a gift is a gift is a gift. IMHO if you retain control of it, it is not a gift.


Dividends are taxable. Gift money is not.

If your corporation pays out a dividend, the receiver will have to pay personal taxes on it. The receiver gifts that money to a parent, that gift money is not taxable.

You can argue, the corporation pays a dividend for the child's education. The child decides to pay for room and board at his parent's house... so the natures and purposes of money are different, even if you regain control of it.


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## dogleg (Feb 5, 2010)

Thanks for the input on this. Sounds like I should run it by my accountant. I don't want to set myself up for a bar code tan this summer.


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