CBA Blog

5 minutes reading time (974 words)

Financial literacy Part 2 - Interest & Tax

Putting politics aside; in the Western World, like it or not, our Governments are deeply influenced by the billionaires and the special interest groups.  Billionaires wants the bottom line while the special interest groups are commoners who wants the common good for our world.  This is why today; you hear social justice in our school textbooks and social media.    The billionaires are the most loop-sided minority in the world who control 85% of the world economy. 

Personally, I have done books for different successful multi-millionaires and I understand first-hand what it means to see seven digits of overflow in the company and their personal income.   I saw 7-digit income tax payment to CRA.   Their overflow is like continuous river flowing out from the icy mountains into the riverbends and out to the ocean with no ending in sight.   Because of their rapid increasing in building equity, they are able to acquire other equities within a short period of time. 

These group of entrepreneurs have structures in place to help them be successful.   Basic structures like workable business model for their different companies, human resource like good managers and employees, legal team, exceptional Tax CPA, private banker and not to forget INTEREST.   I will touch on interest only.  Yes, they are excellent playmaker of using others money to make money.   They repeat this formular over-and-over again like playing the beat and rhythm of drums.  The best part is regardless of if they are successful, the interest are tax deductible.  If the business suffer loss, those losses can be carry-forward to indefinite years against future profits.   

Second.  When the entrepreneur withdraws funds for themselves, they would either withdraw as dividends, shareholders loan, management fees or inter-company transactions.   This is where the skilled Tax CPA comes into play.   If you are a Canadian Controlled Private Company (CCPC), meaning your net income is under $500,000 per year; the general rule-of-thumb is to pay yourself in dividends as this is the least amount of tax for both the corporation and business owners. 

For sole proprietors, your net income will be your earned income.  Tax rate is based on marginal income.  You will still get the small business deductions for operation your business in-order to reduce taxes.  To further reduce your tax, the RRSP will reduce your income.  RRSP should not be overlooked.  

If you are neither a incorporated business owner or sole-proprietors, interest can still work for you.   We call this group Investors.   Investors bring much needed cash to companies to make money.   Our Government recognizes that, and interest can be deducted for eligible investments.   Investors either make dividends, capital gains/loss or interest income.  The first two type of income has a better tax treatment than interest income.  Tax treatment for interest income is the same as earned income.   Why is that?   I will leave you to answer the question on risk and reward.  

Stay tune for financial literacy - Part 3

Putting politics aside; in the Western World, like it or not, our Governments are deeply influenced by the billionaires and the special interest groups.  Billionaires wants the bottom line while the special interest groups are commoners who wants the common good for our world.  This is why today; you hear social justice in our school textbooks and social media.    The billionaires are the most loop-sided minority in the world who control 85% of the world economy. 

Personally, I have done books for different successful multi-millionaires and I understand first-hand what it means to see seven digits of overflow in the company and their personal income.   I saw 7-digit income tax payment to CRA.   Their overflow is like continuous river flowing out from the icy mountains into the riverbends and out to the ocean with no ending in sight.   Because of their rapid increasing in building equity, they are able to acquire other equities within a short period of time. 

These group of entrepreneurs have structures in place to help them be successful.   Basic structures like workable business model for their different companies, human resource like good managers and employees, legal team, exceptional Tax CPA, private banker and not to forget INTEREST.   I will touch on interest only.  Yes, they are excellent playmaker of using others money to make money.   They repeat this formular over-and-over again like playing the beat and rhythm of drums.  The best part is regardless of if they are successful, the interest are tax deductible.  If the business suffer loss, those losses can be carry-forward to indefinite years against future profits.   

Second.  When the entrepreneur withdraws funds for themselves, they would either withdraw as dividends, shareholders loan, management fees or inter-company transactions.   This is where the skilled Tax CPA comes into play.   If you are a Canadian Controlled Private Company (CCPC), meaning your net income is under $500,000 per year; the general rule-of-thumb is to pay yourself in dividends as this is the least amount of tax for both the corporation and business owners. 

For sole proprietors, your net income will be your earned income.  Tax rate is based on marginal income.  You will still get the small business deductions for operation your business in-order to reduce taxes.  To further reduce your tax, the RRSP will reduce your income.  RRSP should not be overlooked.  

If you are neither a incorporated business owner or sole-proprietors, interest can still work for you.   We call this group Investors.   Investors bring much needed cash to companies to make money.   Our Government recognizes that, and interest can be deducted for eligible investments.   Investors either make dividends, capital gains/loss or interest income.  The first two type of income has a better tax treatment than interest income.  Tax treatment for interest income is the same as earned income.   Why is that?   I will leave you to answer the question on risk and reward.  

Stay tune for financial literacy - Part 3

Financial literacy - Part 3 - Accounting Concepts
Financial literacy - Interest & Taxes
 

By accepting you will be accessing a service provided by a third-party external to https://captainbooks.ca/

 wings

Every Person Who Walks Through Our
Door is Important to Us.

Office Hours

RICHMOND, BC