Until this year, business owners could pay dividends to lower-taxed adult children or other family members who were shareholders with few restrictions. But effective January 1, 2018, the rules changed. Now, only family members who meet certain criteria can pay tax on dividends at their personal marginal rate. Otherwise, dividends are taxed at the highest marginal rate.
Here are the situations where the personal marginal rate still applies:
- The recipient works in the business. The family member must be 18 or older and have worked in the business for an average of at least 20 hours per week in the year dividends were received or in any five previous years.
- The recipient holds 10% of shares. The family member must be age 25 or older and hold at least 10% of the shares in terms of votes and value. The business cannot be a professional corporation or service business.
- The recipient is the retired owner’s spouse. The business owner’s spouse can receive dividends taxed at the personal marginal rate if the owner is 65 or older and has meaningfully contributed to the business.
This material was prepared for and published on behalf of your financial advisor and is intended only for clients resident in the jurisdiction(s) where their representative is registered. This material is provided solely for informational and educational purposes and is not to be construed as an offer or solicitation for the sale or purchase of any securities or as providing individual investment, tax or legal advice. Consult your professional advisor(s) prior to acting on the basis of this material. Insurance products are available through advisors registered with applicable insurance regulators. Individual equities are available only through representatives of Assante Capital Management Ltd. In considering any particular investment, please remember that past performance is no guarantee of future performance. Although this material has been compiled from sources believed to be reliable, we cannot guarantee its accuracy or completeness. All opinions expressed and data provided herein are subject to change without notice. Neither CI Assante Wealth Management or its dealer subsidiaries Assante Capital Management Ltd. and Assante Financial Management Ltd., nor their affiliates or their respective officers, directors, employees or advisors are responsible in any way for any damages or losses of any kind whatsoever in respect of the use of this material. CI Assante Wealth Management is a registered business name of Assante Wealth Management (Canada) Ltd. Assante Capital Management Ltd. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. Assante Financial Management Ltd. is a member of the Mutual Fund Dealers Association of Canada and the MFDA Investor Protection Corporation (excluding Quebec). © 2021 CI Assante Wealth Management. All rights reserved.