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How can extra funds from dividends be effectively used in personal financial planning?
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They can be directed to TFSA, RRSP, or other personal accounts to plan for major expenses or retirement.
What should corporations do to manage RDTOH effectively?
Corporations should pay dividends even when not needed to release trapped RDTOH, thus avoiding inefficiencies.
What is meant by 'tax integration' in corporate taxation?
Tax integration aims to make corporate and personal taxes add up to what would be paid individually, though it is not always perfect.
Why is regular consultation with accountants recommended for corporate tax management?
To ensure refundable taxes are optimized, inefficiencies are minimized, and to adjust strategies accordingly.
Explain the concept of 'dividend trapping'.
Dividend trapping occurs when high upfront tax is paid, but without paying dividends, the refundable portion remains trapped.
Why is managing how and when dividends are paid crucial for corporations?
To ensure efficient release of RDTOH and minimize tax inefficiencies.
How does 'smoothing cash flow' through corporate taxation impact investment efficiency?
It provides a larger pool for investment and allows for tax payments to be spread over time.
What is one advantage of corporate taxation related to cash flow?
It allows for smoother cash flow by spreading tax payments over time through dividends.
How does the Refundable Dividend Tax on Hand (RDTOH) benefit corporations?
It allows some tax to be refunded when dividends are paid, improving investment efficiency.
What happens if a corporation fails to manage its cash flow actively by paying out dividends?
The corporation risks paying the top tax rate immediately, which is inefficient.
Why might investing personally be more tax-efficient than through a corporation?
Personal tax rates can sometimes be higher than corporate rates, and without proper dividend management, personal investment can be more efficient.
What is a potential disadvantage of corporate investment in some provinces with high personal tax rates?
It may not be efficient in the long term as higher personal tax rates can make personal investments more attractive.
What is 'tax drag' in the context of corporate taxation?
Tax drag occurs when tax paid on investment income through a corporation is not fully refunded, resulting in inefficiency.
How do provincial tax variations affect corporate investment efficiency? Provide an example.
Efficiency varies by province due to differing personal tax rates. For example, in BC and Ontario, high personal tax rates may favor leaving money in corporations in the short term.
What type of dividends is considered highly tax-efficient for both corporations and individuals?
Eligible dividends (from Canadian companies) are highly tax-efficient.
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