Unlock the Power of eSignature Lawfulness for Retail Trade in Canada

How to eSign a document: e-signature lawfulness for Retail Trade in Canada

all right so i'm just gonna record this video i have tried to record this video probably 12 times and there's been all kinds of things it's raining so there's noise uh coming i've got an extension cord in the background right here and right here in case you haven't noticed um so please forgive me i'm just gonna record this video but this video is about how the canadian tax system works and what canadian business owners need to know about it um to build wealth and use the tax system to your advantage so that's what i'm going to cover in this video so hopefully you find it useful i will power my way through it and try to keep it as simple as possible at the same time so all that and nothing else coming right up i think the thing that people need to know especially small business owners in canada need to know about the canadian tax system is that it's actually set up in a pretty great way it's it's set up so that you can build wealth within your company and also personally for retirement and also to build a nest egg based on your business so that is the fact of it i know there's a lot of other information out there kind of scare tactics to get you to sign up for some crazy tax avoidance schemes and things like that that's not what this video is about and i don't even think most business owners would need anything like that although people do hide money in these loopholes and spend a lot of money doing that but that's not what this is about and i think the approach for for avalon and for myself is that there are avenues to build wealth right within the tax system that are encouraged by the the government um and we can use those to our advantage so i'll let you know all about that and how the system actually works the first thing you need to know about the canadian tax system is that it's really broken up into two parts well actually three but we won't cover trust today and essentially you have personal tax and corporate tax so on the personal tax side we have actually quite high rates so you pay high personal tax rates and in a way this makes sense the government wants its money before you go and spend it somewhere so it's like a consumption tax and that's what gst and hst are all about consumption tax kind of prevents you from from spending too much money and the government wants it to do before you do that the other side is the corporate tax side and there's actually really low small business corporate tax rates between 9 and 15 depending on the province that you're in and the the low corporate tax rate is because the government wants you to grow the economy they want you to hire more people and keep more cash within the corporation um and buy more equipment and all those things kind of create jobs and the jobs that you create those people pay personal tax rates so the government kind of wins by by allowing you to hire more people and keep the economy growing so that's the purpose around uh the two different tax rates and the system is actually built on this really interesting concept called integration so the idea behind integration is that on the corporate tax side you have you know a dollar of revenue and you have some expenses and all of that and then you get taxed on any profit at that low rate well if you go out and pay that as a dividend to to yourself personally what happens with a dividend in your t5 is that gets grossed back up to that original dollar and you get credit for the tax that the corporation paid and then you pay the remaining personal tax on that amount so overall you should pay the same amount and that's perfect integration if if that amount was the same your personal tax rate you paid yourself salary and you received that as an employee would be the same as dividend gross up uh dividend tax credit and the remainder in tax that should be equal it's not always equal and each province will be a little bit different but that is the general overall idea of how integration works and how corporate tax and personal tax work together so that's you know fine and dandy um i think you know there's uh some people that you know will keep as much income within the corporation and sort of build a nest egg within the corporation and that's great you can use it for that to that advantage um but as we've seen with with recent tax changes over the last couple years the government's trying to close this down a little bit they still want you to be able to have enough backup within the corporation in order to uh you know save for the future or find like a rainy day fund for the for the company so it can go get over those lumps but doesn't want you to use that as a retirement fund necessarily i mean you can use it a little bit but they don't want you to use that as retirement fund and save millions of dollars within that corporate structure what they want you to do is pay out salary and then use rrsps and that allows you to you know use the rsp method for you know saving for the future and they want you to push push that through through salary and that's how you create rrsp contribution room and create a retirement fund for yourself which grows really rapidly because we don't pay tax on that now we pay tax on that later so we have a higher uh amount of capital to start with that can grow and pay us uh in the future and our in our dotage as one client did put it um so that's how generally how the tax system kind of works and next i want to just chat a little bit about how you can use that to your advantage overall and what's the other big big method that i think people kind of miss and is really really valuable and can actually change the way you think about your business so the other big tax incentive that the government gives us and is really policy based they want you to do this and get this tax-free money is to create a company that you could sell one day a sellable valuable business and the way we can do that is by using the lifetime capital gains exemption and this is something that's not a loophole it's not going away anytime soon it's really a policy policy-based thing because the government wants you to create a company that's not going to go away when you die or you retire or anything like that people will still be employed and you can sell that business and they're encouraging you to do that by creating this lifetime capital gains exemption which is around 900 000 of tax-free money for selling the shares of your qualified small business corporation and this is such a valuable tool for our retirement for how we build wealth but it seems to be overlooked and i think the reason it's overlooked is because it is a lot of work to do that you have to do a lot of things within your business to ensure that you have this sellable business so really you have to kind of slowly remove yourself from the business somebody's got to be willing to buy your shares from you and when you sell your shares you get that money tax-free so that is there and that is a really big thing that we push in our philosophy i think there's more reasons than just tax to build a sellable valuable business um but that is certainly a big incentive 900 000 of tax-free cash is nothing to wave a stick at all right so how does this all come together well creating wealth is really about avoiding those high personal marginal tax rates if you're making more than 150 000 a year or more than maybe 220 000 a year you're going to be facing really high personal tax rates the marginal rate at that inc at those income levels can be up to 53 and a half percent in bc and i think in ontario as well i'd have to look that that one up but the point is that there's really high marginal tax rates and you never get that money back so if you start paying those high marginal rates and you want to consume above you know 150 000 a year well you're going to get hit with high corporate high personal tax rates that's just the fact of it the government wants their due so how do we avoid paying those high marginal tax rates well one of the ways is rrsps that and like i mentioned you take that right off the top of your income and save that for a future year where you have lower income amounts the other is putting money into your corporation so creating a nest egg within your corporation that you've paid low corporate tax rates on and building some value within that and you can get some investment income without whittling down your small business deduction which is 50 000 a year in passive income with within the corporation that helps prevent us paying that high personal marginal rate now there are some more advanced ways to do this as well not in the scope of this video but i think i mentioned the past with with insurance policies and holding company structures that that you could you know if you're getting beyond these two more typical avenues of tax deferral that you would want to engage with a tax professional to see how you could further save but these are the two sort of ones that are really readily available to anybody off the street and it's perfect for most small business owners all right so that's my video on corporate and personal tax tax policy in canada for small business owners i'd like to hear what you think are you trying to avoid those high personal marginal tax rates how are you going about doing that i'd like to hear from you in the comments below and do you have any questions just just reach out down below with any questions that you have i'm thinking about doing a segment at the end of these videos of just the previous weeks questions from the video so if you do have a question i'll try to cover it on next week's video so stay tuned for that and um really if you like this video please hit that like button that really helps us out with youtube algorithms being what they are these days and hit subscribe if you like this video and also want to hear more from us we'd love to see around the channel so thanks so much for watching and we'll see you on the next one cheers you