As an owner of a corporation, can I not simply pay my child a salary/dividend to avoid paying high taxes on it myself?
Allan Madan, CA
Paying children (minors – children under the age of 18) a salary and/or dividend is a useful strategy when income splitting. If you would like to pay a salary to the child, the amount paid must be reasonable. “Reasonableness” is determined based on what the typical/normal pay would be to anyone performing a similar duty. Also, to justify a salary, the child must be performing some duty, and the work done must be documented.
On the other hand, dividends paid to minors will be taxed at the highest marginal tax bracket. This will essentially eliminate the advantage of income splitting, which is done to reduce taxes.
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The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.
ABOUT THE AUTHOR
ALLAN MADAN
CA.CPA.CGA
Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.
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