You run your business well. You're an expert in your field and have the right people working for you. However, you may have some questions when it comes to specific accounting strategies for your corporation. Our in-house tax experts collaborate with your accounting and legal team to determine the right path for you and your business..
As a small business owner, it is not uncommon to have a bad year. You may be looking for solutions to help soften the burden of this particular year and ask if you are eligible for any tax breaks? A loss carryback may be able to help you.
Capital Dividends Accounts
As the owner of a corporation, you must keep track of everything that goes on inside your business. However, it is often difficult to keep a pulse on everything. Tools are available to help keep things in order.
Minimizing penalties for keeping money in the company
Common accounting questions business owners ask:
What are retained earnings?
Over the years, as your business has flourished and you've earned profits, you most likely have left money in your company as retained earnings.
Simply put, retained earnings are the cumulative total of annual earnings incurred by your company after you have paid all of your expenses (including income tax on those earnings) and distributed any dividends.
If you've kept track of your finances, calculating retained earnings is easy. The formula for retained earnings is as follows:
Current Retained Earnings + after-tax Profits (or – Losses) – Dividends paid = Retained Earnings
What are dividends?
When your business does well, and you are satisfied with how much money you are re-investing into your business, you can pay out a portion of your retained earnings to your shareholders as a dividend.
A dividend is an amount distributed out of your company's after-tax profits to its shareholders in proportion to the number of shares that they hold.
Are dividends taxable?
Yes, dividends are taxable. Any income that your business has generated that is taxed at the higher rate can be paid as an eligible dividend. However, any business income that has been taxed at the lower rate, or small business rate, will be paid as an ineligible dividend.
What is an ineligible dividend?
If you're a Canadian corporation, public or private, and pay dividends to your shareholders from either business income taxed at the lower rate or from investment income earnings, your shareholders would be receiving ineligible dividends. These ineligible dividends are subject to a higher rate of personal tax than eligible dividends. Ineligible dividends are also referred to as:
- Regular dividends
- Small business dividends
- Ordinary dividends
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