TAX PLANNING: 5 Simple Ways to Minimize Your Income Tax

INCORPORATED HEALTH PROFESSIONALS: Feeling the squeeze from reduced patient billings and increased income tax? I feel your pain. Since January 1, 2016, combined income tax rates on dividends earned in Ontario have increased 5.17% for individuals earning $220,000 or more annually. Consequently, $100,000 of eligible dividends will cost you $5,170 more this year than last.   Moreover, as early as March 2017, other proposed budget changes could see your PC’s corporate tax increase by $11,500 for every $100,000 of active business income earned. So, what to do?

Here are 5 simple ways to minimize your income tax:    

  1. Draw out tax-free capital dividends, FIRST;
  2. Distribute dividends to family member(s) in low tax brackets;
  3. Take the optimal salary-dividend mix – both you and your family members – from your PC;
  4. Remove excess cash from your PC to maintain access to the lifetime capital gains exemption (2016 – $824,176);
  5. Earn investment income personally rather than in your PC: Investment income earned in your PC now has a higher combined tax cost than if earned personally due to 2016 budget changes.

(Don’t overlook the Canada Child Benefit claw-back in your remuneration planning.)

 Take action now before it’s too late

(December 31, 2016 is too late.) Check with your accountant ASAP and ensure that each of these steps has been considered. .

Planning point #1: Take the cheapest dividends first. Capital dividends, for example, are tax-free! Ineligible dividends can be more expensive than Eligible dividends. (Ask your accountant if safe income has been considered.)

Planning point #2: Does your PC have a refundable tax balance?   If so, consider the following:

  • First, declare eligible dividends and recover refundable dividend tax without increasing your personal income taxes by a higher amount;
  • Next, declare ineligible dividends and recover refundable dividend tax balances without increasing personal income tax by a higher amount;
  • Lastly, be aware of the Alternative Minimum Tax – this could be triggered by dividends from your PC.

Even the simple may not be so simple.   So, if you have any questions about ways to minimize your tax, please feel free to contact Jonathan at (800) 845-0540 or jtucker@tuckerspc.ca to discuss further.