[opie]

We have been struggling with this new concept of whether to bonus down to the small business limit (SBL) or to instead, pay eligible dividends from the GRIP. We have taken courses in which the instructor tells us these GRIP dividends will revolutionize the tax planning, where we had historically always automatically bonused down to the SBL, we will now consider otherwise.

In the courses, however, the premise is that the tax systems will not be fully integrated until 2010. In all of our calcualtions for 2007 and 2008 year ends so far, there is more combined personal corporate and personal income tax when we choose to not bonus down and pay eligible dividends instead. So the question is raised as to why do it then, at least until 2010 comes around?

Pretty much all of our clients in this situation have active taxable income in the $700,000 range.

Can anyone else share their thoughts and maybe their decision making process?

[unknown]

Tax planning is not a cookie cutter exercise...

Judge each case on its merits

[opie]

Thanks for taking the time to reply.

It seems to me that every instance that I am referring to in my post brings me to the same conclusion. What is the point to going the eligible dividend route prior to "perfect integration" in 2010?

I am not looking for a cookie cutter solution, just some helpful feed back as to whether or not anyone else is struggling with this as well.

[David Blue]

opie, on Nov 24 2008, 06:11 PM, said:

Thanks for taking the time to reply.

It seems to me that every instance that I am referring to in my post brings me to the same conclusion. What is the point to going the eligible dividend route prior to "perfect integration" in 2010?

I am not looking for a cookie cutter solution, just some helpful feed back as to whether or not anyone else is struggling with this as well.

I just came back from the devaney 2008 tax update. The benefit is varied depending upon province. Care and consideration mus be given to that.

The reason I am going the way of Eligible Dividends is that CRA does not come back on you for withholding taxes on Bonuses/Management fees and once you have hit that
magic $ XXXXXXXXXX in wages.

The next best tax planning that I have come up with for these cases is that I am having them go into Indivigual Pension Plans. Deductable by the company. etc etc

and yes everything has some drawbacks.

At some point you just cannot draw down to that magic 430 - 460,000, which will be $ 500,000 soon.

In the end, One company I am going the route of Eligible dividend and one I am not.

[CFP]

Hi Opie,

Its hard getting a grip on the GRIP!

Here in Ontario, you will find most will continue to Bonus Out or setup a Retirement Compensation Arrangement (RCA). In the past, many CAs would force a Bonus Out, and then have the Executive lend money back to the corporation for working capital. What the lower corporate tax rate and GRIP rules will do is make the Retained Earning Strategy more and more common if the CCPC needs the cash. But if the CCPC does not need the cash, nor does the Executive, the RCA will be the preferred option.

Given that more CCPCs above the SBL have earnings between $500K and $1.5M, the Bonus Out or RCA would be the option most CAs will go with to avoid Ontario’s 4.25% provincial surtax for earnings above the Small Business Limit.

Some good articles to read are:

- CCH Estate Planner ‘Eligible Dividends — A Prediction’, May 2008, David Louis, CA.

- CLU Comment , ‘RCA, Dead or Alive’, Sept/Oct 2008 #251, James Kraft, CA, M.Tax, CFP, CLU

- Advisor Edge Report, ‘Getting the GRIP on CCPC Dividends’, April 2008, by Carl Rosen, BA, B.Litt, LL.B, JD

Please feel free to contact me if you cannot locate the articles online, I can email you a copy. I've also written something about this located at: http://pgfinancial.c...n...ments&pid=8

We have to look at all factors, and not focus on the theoretical tax rates that may or may not materialize at some point in the future. Personally, I don't think Business Owners would want to leave too much in retained earnings. In case of financial hardship, creditors can access those funds. So leaving the money in the corporation is not a good long term strategy. We have all seen some pretty big companies fall in the last year, no owner wants to lose all ihis/her money to creditors in case they fall too.

Regards,
Pierre

opie, on Nov 24 2008, 11:27 AM, said:

We have been struggling with this new concept of whether to bonus down to the small business limit (SBL) or to instead, pay eligible dividends from the GRIP. We have taken courses in which the instructor tells us these GRIP dividends will revolutionize the tax planning, where we had historically always automatically bonused down to the SBL, we will now consider otherwise.

In the courses, however, the premise is that the tax systems will not be fully integrated until 2010. In all of our calcualtions for 2007 and 2008 year ends so far, there is more combined personal corporate and personal income tax when we choose to not bonus down and pay eligible dividends instead. So the question is raised as to why do it then, at least until 2010 comes around?

Pretty much all of our clients in this situation have active taxable income in the $700,000 range.

Can anyone else share their thoughts and maybe their decision making process?