How do I save taxes using capital dividends?
If a corporation sells an asset for a gain, it can distribute a portion of this gain to the shareholders tax free as a Capital Dividend.
When an asset is sold for a profit, half of the profit is not taxable. If the asset is owned personally, the owner has direct access to the tax free profit. If the asset is owned by the corporation, the tax free profit is trapped inside the company. The Canadian tax system is based on the concept of integration. It should not matter whether you earn the income inside or outside a corporation, the tax treatment should be equal. Therefore, shareholders are permitted to withdraw the tax free profit by way of a Capital Dividend. This dividend is not reported on the shareholders tax return as no tax is owed on the amount.
This dividend requires some special paperwork and procedures prior to and through the issuance.
For more information and to declare your Capital Dividends, please contact us.Download a copy of this issue