This one always surprises me. What it boils down to is that people including experienced business people are afraid of income taxes. So when they hear “capital gains” tax, they assume it is going to be big and they try to avoid it. In actual fact, capital gains taxes are almost the lowest personal income taxes.
Here are the personal income tax rates at the top tax bracket in B.C.
Salary and interest 43.7%
Dividends from large corporations 18.5%
Dividends from small corporations 31.6%
Capital gains 21.9%
So unless you can arrange to get all of your income from large corporations as dividends, the best rates are capital gains rates.
My advice to clients is to actually look for capital gains because of the lower tax rates.
The concept is very similar for corporations but is harder to illustrate. Please feel free to become our client and ask our advice on this issue.
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