Personal tax accountant in Mission

Two ways to pay a spouse, two entirely different tests

A corporation can pay a family member a salary or a dividend, and the rules that govern each have almost nothing in common. A salary is deductible to the corporation and taxable to the recipient, and the only real question is whether it is reasonable for the work actually performed. A dividend is not deductible, and the question is not reasonableness at all — it is whether the tax on split income rules apply, which can push the amount to the top personal rate regardless of the recipient's other income. Owners who think of the two as interchangeable ways of moving money to a spouse are working from a model that stopped being accurate several years ago.

Reasonable means what a stranger would have been paid

A salary to a spouse is deductible to the extent it is reasonable in the circumstances, and the working test is what the corporation would have had to pay an unrelated person to do the same work. That makes the defence documentary rather than rhetorical: a description of the role, hours actually worked, and a rate that bears comparison to the market. Where the work is real — bookkeeping, scheduling, quoting, dealing with suppliers — this is straightforward. Where a spouse is paid a substantial salary for work nobody can describe, the deduction is at risk and the recipient still pays tax on the income, which is the worst of both outcomes. See paying a spouse a salary.

Split income, and the exclusions that survived

The tax on split income rules apply to certain amounts, including dividends, received by family members from a private corporation connected to a related business. Where they apply, the amount is taxed at the highest personal rate and most personal credits cannot shelter it. The rules include several defined exclusions — among them amounts received by a person who has been sufficiently involved in the business on a regular, continuous and substantial basis, amounts related to certain ages and circumstances, and returns on capital contributed in defined ways. The exclusions are specific and fact-driven, which is exactly why the question has to be answered before dividends are declared rather than after. See the tax on split income guide.

Payroll obligations arrive with the salary

Choosing salary brings the corporation into the payroll system: source deductions withheld and remitted on a schedule, and slips filed after the calendar year ends. Those obligations are not optional and the penalties for late remittance are among the least forgiving in the system. It also means the spouse accumulates RRSP contribution room and contributes to the public pension plan, which is either a benefit or a cost depending on the household's age, savings plan and view of the pension. None of that is an argument against salary — it is an argument for deciding with the whole picture rather than by whichever route feels simpler. See payroll remittances and the RP account.

What this looks like across two returns

Once a spouse is paid, the household has two personal returns that are connected through the corporation, and several claims — dependant amounts, childcare, medical, donations — whose optimal placement depends on the income split that was chosen. Deciding the remuneration in isolation and then trying to optimise the returns afterwards inverts the order. The better sequence is to know what the household wants the two returns to look like and then set the corporate payments to produce it, within what the rules allow.

What is covered

One Chartered Professional Accountant handles the whole file:

• Salary reasonableness review and supporting documentation
• Split-income analysis before dividends are declared
• Payroll registration, remittances and year-end slips
• Both personal returns prepared together with the corporate return
• Household credit placement given the chosen income split

Remote, and there is no Mission office

EverStone has one office, in Abbotsford, and no Mission location. The engagement runs entirely online — video meetings, e-signature and secure document upload — which for a household discussion involving two people and a corporation is usually easier to schedule than a shared trip to an office.