For shareholders of companies currently receiving a salary, it is possible to save $4,828 of annual CPP contributions by changing your remuneration to dividends. Since the start of a new year is the best time to implement such a change, now is the time to consider this.
Wages and salaries paid in excess of $3,500 are subject to CPP contributions. However, remuneration paid in the form of dividends is not, which results in a significant saving that can be multiplied if there is more than one shareholder. For a business employing a husband and wife, the savings can approach $10,000 per year… Hello Vegas!
Legislation currently contains a “drop out provision” that allows a person to not contribute to CPP for upwards of eight years without impairing their ability to collect the maximum pension available upon retirement at age 65. This is to take into account years of low employment earnings while attending post secondary schools, raising children etc.
Naturally, each person’s situation can differ as not everyone will qualify for the full drop out period without impacting their future pension receipts. Further, not being paid a salary can impact one’s RRSP contribution limits. Nevertheless, there are practical approaches to deal with individual circumstances and we would be pleased to discuss this with you in more detail prior to the start of the new year.