The Busiest Day of the Year...

Welcome to the busiest day of the year for an accounting firm. If a firm deals with self-employed operators only the busiest day would be April 30th (for checks to be mailed for CRA) or June 15th (for returns to be mailed), but for those firms who work with operators with corporations (due to subsistence allowance) today is their day of “madness” (not really if one is organized and didn’t procrastinate).

An operator that is incorporated should send regular source deductions in for their salary. However, once the year end is completed, the income from the corporation should be transferred to the owner/president through what is called “management fees”. The source deductions for management fees claimed December 31 is due January 15th (hence the busy day).

As I stated in my book, the majority of operators who drive one truck (their own corporation’s truck) should almost always claim the income personally. The corporation should not be claiming any income (actually about 80% of all privately held Canadian corporations claim zero income). This is because the combination of corporate income tax and dividends tax is greater than if the operator claimed everything personally (unless the t4 would be more than $63-65,000 per year). If it is above that amount the new tax bracket would propel the operator into a tax range that it would make sense to pay corporate tax then dividend tax. Since the vast majority of all operators would not fall into that category (especially if the operator is collecting subsistence allowance and has a spouse who is a shareholder/director/officer and can receive a $63-65k t4 as well). One truck whose operator is collecting subsistence will rarely make more than $65K. National averages are $50-55K before subsistence (which knocks off an additional $15k).

If your accountant starts spouting off “dividends” when your t4 is less than $65K start asking questions!