Event 7 of the 12Event Planning Model
Corporate Surplus, Dividends & Shareholder Income
Getting the Money Out
Take money out of your company the gentle way.
How TaxOnTax helps at this event
Planning the mix of salary and dividends and how money leaves the company, alongside the company's T2 and your personal return.
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Why this matters
Building wealth inside a company is only half of the job. The other half, the half almost nobody plans for, is getting that wealth back out and into your life without handing away more than you need to. An owner can do everything right for twenty years, growing a valuable, profitable company, and still lose a startling amount at the very end by extracting the money clumsily.
This matters because the money in your company isn’t really yours yet, not in the way the money in your personal account is. The second, personal gate still stands between the company’s balance and your own, and how you walk through it (what form you use, which of the company’s special accounts you draw on, and over what stretch of time) determines how much of your own money you actually keep.
What most business owners get wrong
Extraction is where good builders frequently turn into poor harvesters. The recurring mistakes:
- They freeze. Afraid of the tax, they leave money piling up in the company indefinitely, where it does nothing for their lives and can set off the passive-income clawback from Chapter 5. Doing nothing feels safe; it is often the costliest choice of all.
- They never use the tax-free account. They pay full tax on money that could have come out entirely tax-free, simply because no one knew the account existed or remembered to use it before it was lost.
- They leave refunds stranded. They let prepaid, refundable tax sit unclaimed in the company for years, never paying the dividends that would spring it loose.
- They extract everything one way, out of habit. All salary, or all dividends, chosen by reflex rather than by plan. The best result almost always comes from a thoughtful blend, drawn from the right accounts in the right order.
- They mishandle shareholder loans. Borrowing from the company and forgetting to repay in time, then being taxed on the whole amount as income, a wholly avoidable, genuinely expensive surprise.
- They cram years of extraction into one. A single giant withdrawal can spike them into the highest personal rates, when spreading the same amount across several years would have kept far more of it. Surplus that took fifteen years to build rarely needs to come out in one.
Your simple checklist
- Do you know whether your company has tax-free room you could pay out?
- Is there refundable tax sitting in the company, waiting for dividends to release it?
- Do you know which kind of dividend your company’s profits can support?
- Are you extracting the tax-free money before the fully taxable money?
- Is your extraction spread across years to avoid spiking your personal rate?
- If you borrow from the company, are you repaying within the required window?
- Are your dividends properly documented and your special accounts tracked?
- Is your extraction plan coordinated with your personal income and thresholds?
Questions to bring to your Discovery Meeting
- Does my company have a capital dividend account (CDA), and how much could be paid out to me as a tax-free capital dividend?
- Does my company have refundable dividend tax on hand (RDTOH), and which dividends would recover it as a dividend refund?
- How much of my company’s surplus can be paid as eligible dividends from its general rate income pool (GRIP), and how much as non-eligible dividends?
- If I borrow from my company, when must the shareholder loan be repaid so it is not included in my income?
- Would a multi-year plan of salary and dividends keep my income out of the top federal tax bracket and lower my marginal tax rate?
- Before my company pays a capital dividend, has the capital dividend account (CDA) balance been confirmed and the election filed in prescribed form at or before the payment?
The TaxOnTax™ Insight
Building wealth in your company is half the work. Knowing how to bring it home (tax-free money first, refunds triggered, the rest spread with care) is the half that decides how much you keep.
Excerpted from Chapter Seven, “Getting the Money Out”, of TaxOnTax™: The 12Event Planning Model, second edition, by Derik Godbout. Lightly trimmed for this page; the full chapter adds a worked example and the before-and-after steps.
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TaxOnTax™ Advisory Ltd. is a tax planning, accounting and executor advisory practice that also provides plain-language tax education. Derik Godbout is a PBA, CEA and DMA, Personal Tax Services Specialist™, not a CPA, lawyer, registered investment adviser, or licensed insurance professional. Nothing on this site constitutes personalized tax, legal, investment, or insurance advice. Always consult a qualified professional before acting on any information.