How much taxes should I expect to pay?

  1. Remit the net of the GST you collect on your invoices less the GST you pay on purchases every quarter (or if you are eligible and it works out for you remit 3.6% of your total invoices every quarter in accordance to the quick method accounting).
  2. Prepare to pay 11% corporate tax on your net income.
  3. For personal taxes, the rate changes depending on how much money you transfer to your personal account.  Below, you’ll find the rates listed beside the amount of money transferred to your personal account within 1 fiscal year:
  • 3% on the first $30,000 of money you transfer out
  • 15% on the next $11,000 your transfer out on top of the $30,000
  • 21%  on the next $9,000 you transfer out on top of the $41,000
So you if you take out 30k in the year it costs you $837 in taxes, $41k costs you $2,535 and $50k costs you $4,394.  Try not to take out more than $50k out in a single year per spouse but email us if you are at this stage and we will send you some analysis.
  1. You can optimize your 2 biggest expenses: taxes and housing by balancing your draws from your corporation
  2. Once you have a business you love (1st) and a home that you love (2nd since your business determines where you’ll live),
  3. 3rd you prioritize health and fun. Assuming you have a spouse you can pay yourselves a combined $100,000 = $250/day in after-tax spending.  With a mortgage out of the way, $50k per year on basic living expenses and $50k per year on extras everything is possible without having to write-off corporate vehicles
  4. You can expect to pay an overall 13.93% on $300K of profit and less with each additional dollar of profit. Here is the math:
Corporate Income $300,000.00
Small business tax @ 11% -$33,000.00
Net cash retained after-tax $267,000.00
Dividends payable $100,000.00
Net personal tax on dividend -$8,788.00
Net cash to Shareholders $91,212.00
The total taxes -$41,788.00
Net cash to Shareholders $91,212.00
% of combined taxes of net cash -45.81%
% of combined taxes of earnings 13.93%
Corporate Income $300,000.00
Wages -$100,000.00
Co. portion CPP -$4,603.50
Income before taxes $195,396.50
Small business tax @ 11% -$21,493.62
Net corporate cash retained after-tax $173,902.89
Personal T4s $100,000.00
Income Tax -$16,538.88
CPP -$4,603.50
Net cash to Individual $78,857.62
The total taxes -$42,636.00
Net cash to Individual $78,857.62
% of combined taxes of net cash 54.07%
% of combined taxes of earnings 14.21%

Rather than staying upset, let’s keep things in perspective and even without vehicle write-offs, we still have it better:

$50,000 has $5,148 cash advantage to being earned as a T5 vs T4 
Personal T4 $50,000.00
Income Tax -$8,269.44
CPP ($2301.75 each paid by employee and company) -$4603.50
Net to employee $36,127.06
Corporate Income $50,000.00
Small business tax @ 11% -$5,500.00
Net cash retained after-tax $44,500.00
Dividends payable $44,500.00
Net personal tax on dividend -$3,225.08
Net cash to shareholder $41,274.92

The more you personally pay yourself the bigger the advantage of earning dividends rather than a salary (up to a point). As with all convex mathematical functions, there is only one minimal value that describes the combined taxes in terms of its variables. Our job is to find the global minimum of this function, that is, we find the point such that f(x ) < f(x) for all in the domain of the function.

THUT anticipates changes rather than reacts to them. Optimising combined corporate + personal taxes depends sensitively on draws, income, and dividend-salary mix.

There is too much choice and we all suffer decision fatigue. The start of the year is a good time to plan out the rest of the year. Life is too short to spend time shopping – shop as little as possible and have your necessities automatically delivered to you in a biweekly shipment.

Likewise, map out your personal expenditures and set it on auto-pilot.

Choose one of the 5  options below to transfer from your business account to your personal account each month (set up an automatic transfer through your bank).  And don’t use your business accounts for any personal transactions!  The amounts below are per person.

  1. Personal income of $2500/month = $72.67/month in taxes ($837/year)
  2. Personal income of $3,437.50/month = $204/month in taxes ($2,535/year)
  3. Personal income of $4,167/month = $356/month in taxes ($4,394/year)
  4. Personal income of $5,000/month = $529/month in taxes ($6,517/year)
  5. Personal income of $6,667/month = $884/month in taxes ($10,765/year)
  6. Personal income of $8,333/month = $1338/month in taxes ($16,264/year)

Basic: Keep your monthly personal income below your worst month in 2017, repeat this every year.

Wealth Composition

95% of your wealth should be safe: Minimum 40% cash + Maximum 35% business interests + 20-25% real estate.

5% of your wealth should be in high-risk investments. Losing 5% will not wipe you out, but it’s enough to efficiently increase your wealth. Once your principal doubles, take back your principal and put it back into you safe mix and re-balance as required.

 

 

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