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-

page 18 -February 25, 1976.

, From The Institute a
_. Of Chartered Accountants
of British Columbia

The “4acorporation of a

m:the point of view
of legal liability and ease of
financing, but the major tax
advantage of incorporation is
that of tax deferment. ~

Tax: deferment: .
when income is taxed in a
corporation at a rate less

- than what it would have been”
taxed at in the hands of the

individual.

In most cases, once the:
after-tax earnings: of the
_ corporation are paid to the’

individual shareholder by

way of dividend, the tax paid |

by the corporation on the

income and the tax paid by.

the shareholder on: the

dividend should approximate -

the tax that would have been
paid by the individual had

he received ‘the | _ income
directly.
The. deferment ‘occurs ©

where the income is taxed in

‘the hands of the corporation .
currently and a dividend is

not paid to the individual
immediately. _

The effect of deferrhent it by
allowing what would other-

wise be personal income flow |
first into a corporation and.
depends upon the nature of -

the i income.

- Dividend

las: many advan-~

‘occurs -

income in a
corporation is taxed at 33-% ©

- North Shore News.

per cent. Dividends received
by an individual with taxable
" income in excess of $31,521

(1975 rates) are taxed at
rates in excess of 33-% per
cent. The tax paid in a

cerporation is totally refund- -

able once dividends are paid

by that corporation ‘to the
‘shareholder. . .

Other -investment income
in British Columbia has <«
basic corporate rate of tax of

49 per cent for 1976. The rate .
‘of. ‘tax:

is higher in. the
individual’s* ‘hands ~
taxable income

‘ once again, $31 21.

income

exceeds,

Active business

not exceeding $100,000 per
year (or $500,000..accumula- -
‘ted since 1972) earned in a.
~ corporation is taxed at a rate

‘of 25 per cent.

Taxable
income in excess of $2,348

‘(1975 rates) is taxed in the .
individual’s hands at rates in_

excess of 25 per cent.

: Therefore, if thé individ- ’
ual’s marginal tax rate is in.--
~excéss of 49 per cent (where
his taxable income is: in-

excess of $31,521) it would

‘be better to pay. tax on.
dividends and othe invest-
_ment income. in. a_corpora-

tion. Furthermore, if income

‘is-from ‘an active. business

and it is less than $100,000
per year ($500,000. accum-

ulated since 1972) it would
_ also be better to incorporate

the i income.

“the benefit. ‘to be gained a
‘by the individual by way of
"tax deferment : on “active

if: “his”

business ~ income -

from ~ ‘mariufacturing | -and

: processing. Such income less ©
than. $100,000 per year from

4n active business may be

‘é

taxed at 20 per cent in the

: corporation.

The “second advantage of |

incorporating — is that-. of

income splitting. If 2 hus-

band and wife both take part:
in a business, a‘ salary may

be paid from a corporation to.
@ spouse “whereas ‘a salary

cannot usually be paid from.
one spouse to .another if the
business were not incorpor-

ated.

Furthermore,. with income
from investments in a. cor-
poration the shares’ may be.

‘is even”
greater if such: income is.

. In addition, ‘such tech:

niques as the. use of 4
deferred profit sharing plan.
“may: forego the- payment of ©

tax in the company-in the

_ current year. with the indi-
vidual paying tax in. some |

subsequent year.

“There are also disadvan-
tages to incorporating ° a
business or incorporating
‘investment income.

If the active ‘business
income is in excess of
$100,000 . per year, - qr

- $5090, 000 accumulated’ since

1972, the tax paid by. the ©
_Coroporation and the individ-

held by both husband and .-

wife (with each paying: for.
their shares from their own |

funds) and “the
earned on... those '

income
shares

. would not be attributed from

one spouse to another.

_ Without'a corporation, the :
. income earned on investment:
--assets transferred from one.:
“spouse to another is attrib- -
uted back to the transferor.

spouse and included in his or

her income. Attribution may.
_be avoided by the” incorpor-
ation of investment income. ae

Other. tax advantages of a
incorporating are in the areas
planning . and:
. deferred compensation. A-

in estate -

corporation may be a vehicle

for. estate” “planning. ‘during :

one’ s lifetime.

Bob Mills
North-Van
“I do my shopping ‘down’ at:.

Dart’ Enterprises and I've -

found that prices have gone"
down -iri the ast | week,’
‘especially cigarettes. ;

Betty Scoit bs
‘North Van.
I've noticed that firlees 5 seem:
to be about thé same. In fact,
. where 1 shop, the ‘price: of”
powdered | milk , has
‘down.

| North Vancouver .
_T’'ve noticed a few small price |
“Ancreases, but, I’ve got a.

“Bone

This week the Inquiring Reporter coke:

Mrs. Denise Exberly

- North Van.

‘V’ve found heating oil ‘has
gone up. Except for that and
coffee, (which has to do with

a poor crop), | haven't ‘seen
“prices going’ up in’ great

leaps. .

feeling: the’ worst: is yet to

“Gome. ae ay

Mrs. B. Melissen’

_. Mrs. M. Tuzzi

North Vancouver

This’ basic staples like milk,
and bread are about tlie |‘ B
- same. In‘my personal shopp-..

ing, I’ve notice that Safeway «j

is cheaper than Super’ valu.

North Vancuver

There doesn’t seem to. » be as ;
«many specials on meat in thé
the prices...
of staples appear to be about. te
‘the, same,

past week..So far

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dividends would exceed the

‘taxes which would have been

payable by the individual had _

he received . such. income
directly.

Also, | if ‘the individual’s

' marginal tax rate is less than

49 per. cent, there would bea
pre-payment - -of - on

investment income fit it were -
‘to flow through a corporation.

rather than a deferment. of
tax. —

_ Furthermore, capital taxes
in British Columbia (at a rate
of 2/10 of 1 per cent of

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In summary, the individual _
should incorporate his’ in-

.. come if his marginal tax rates
_ are in excess of the corporate

tax rates applicable to the
particular i income. —

It st ould be. noted. that- a
popular misconception i is that
expenses may be more easily
deductible in a corporation |

than by the individual on his .

personal tax. return. The
for incorporating

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‘deferment of income taxes.

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