An Innovative Multiplier Effect
It’s tough out there. You
work hard for years to build a business.
Finally you are making some money. You collect
a salary, but the taxman
taxes your money twice. First your company gets
taxed and when you
take money out of your company, they tax you again.
Once you get past the small business deduction
limit, it can make you crazy. Here is a strategy
that can solve this problem.
The following is an example. You
have profits in excess of the small business deduction.
If you leave the money in the company it will
be taxed at the highest corporate tax rate and
then if you take it out a year later you may
pay tax at the highest personal rate again. Here
is what you can do.
We arrange for a Canadian bank to advance you
one million dollars with a
tax deductible interest cost of $50,000 (5%) per
year. Invest in a Cash Distribution Fund that
pays out 10% tax free for at least ten years.
Arrange for your corporation to
pay you a bonus of $50,000 per year (you
can have the tax withholding waived with evidence
of a corresponding
deduction). Your $50,000 of bonus income is offset
by the $50,000 cost of
borrowing. The taxes are neutralized for now.
The next step is to use the 10%
income stream from the Cash Distribution Fund
($100,000 tax free) to pay down the loan. In year
two of this program the cost of interest is $45,000
so you take a bonus for $45,000 and so on. After
10 years, the loan is paid for and the investment
in a range of $600,000 - $1,200,000 belongs to
you.
Summary
Over a ten year period the total bonuses from
your company will add up to $275,000. Because
this amount was bonused out of the company to
you personally, it wasn't subject to corporate
taxes. On an after tax basis
to the corporation, the outflow is equivalent
to $165,000. This is a
significant return.
To avoid being taxed twice you
will need to pay out excess income. It is
most beneficial to neutralize the taxes on the
excess income over the small
business deduction.
If the being taxed twice frustrates
you, you owe it to yourself to look at this
strategy and set your profits free.
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