Fair point.
I dont know the ins and outs and I dont do it myself. I just get the vibe from the daytrader dudes doing it this way is it's a big tax saver than trading from their personal accounts. At least that's how they promote it when they talk about it.
Boring Canadian Tax Talk Follows!
Corporations get a few breaks from the CRA (including things like being able to bring losses from previous years in to cover profits from the next), and the
corporate retained earnings (i.e. net profit after costs) are taxed at a lower rate (let's say 15%) but the money isn't helpful to the owners personally until it is brought out somehow - generally by either dividends or salary (*)
There are pros and cons to both methods but they're both taxed. Dividends are taxed a bit less - let's say around 20% - but they're not counted as "costs" to the company, so that's tax paid on money that the corp already had taxed - so we're back to about the 35% ish range for personal use.
Salaries are more annoying, as things like CPP have to be paid on top (which comes out of both the corp's account as well as the "owner-employee") and are taxed at the usual personal rate (around 35ish percent again or whatever it is), but are considered as costs vs. the retained earnings, so the corp
isn't paying tax on those funds. The usefulness here is if the corp is making way more than the owner wants to receive in a year. Think of it a bit like "investing" in a shitty mutual-fund RRSP - the value is not the infinitesimal interest, but rather not paying tax
now on money you don't need now. But you'll pay tax on it later when you cash it out, but presumably that will be a lower amount so you'll hit lower tax brackets.
The best one can do is to optimize a mix of dividends and salaries but the CRA doesn't like seeing salaries fluctuate all the time, so a strategy might be to take a salary that basically covers the minimum expected revenue (or a bit more) and then top it up with dividends in higher-performing years. In poor years, if the salary is more than the revenue and the company posts a loss, it can get credits to apply to subsequent years, but ofc the CRA doesn't like seeing a pattern of losses every single year either.
I don't really know, but suspect that for your daytrader friends the main value would be that if trades go poorly and they suffer a loss, they won't be paying tax on the money they invested and lost, whereas someone using their take-home pay to buy gamestop shares or w/e is presumably doing so with money that's already been taxed?
(*) One thing the CRA takes a dim view on though is using corporate money for personal use - there's no "company car" being paid for by the little day-trader shell company without getting calls from Ontario. Even having things like your home-office expenses covered used to be a huge pain in the ass unless it was in a different physical location. They backed that off a bit during the 'Ronies but since we're in the Memory Hole
period now, I'm sure things are back to normal.
Wait, what is this thread actually about?
