Frequently Asked Questions - Corporations

In this article:

  1. What is the Other Income column used for?
  2. How do you enter the proceeds from selling a business at a future date?
  3. What happens to the Corporate Net Worth of a client if a spouse outlives him/her in the projections?
  4. How can you model corporately owned life insurance?
  5. Does Snap track the Refundable Dividend Tax on Hand (RDTOH)?
  6. Why does it take a few years to fully deplete the Corporate Assets when paying out eligible or non-eligible dividends?
1

What is the Other Income column used for?

If you want to add any additional income to the Capital Assets, you can use the Other Income column. This column is useful to handle any other income that is non-taxable (e.g. intercorporate dividend received from a connected corporation tax-free, after-tax proceeds from real estate disposition or after-tax proceeds from any other corporate asset disposition or an insurance payout).

2

How do you enter the proceeds from selling a business at a future date?

If you expect to sell a business at some point, you can enter it as a lump sum amount on the personal planning page.  Click here to learn how to add a lump sum amount to the projections. You do not need to use the corporate module for this.

3

What happens to the Corporate Net Worth of a client if a spouse outlives him/her in the projections?

The Corporate Net Worth of the client is transferred to the spouse upon the client's death.  At that point, the Corporations column in the spouse‚Äôs projections will show the combined (client and spouse) Corporate Net Worth as dictated by the percentage ownership.

4

How can you model corporately owned life insurance?

We have a few suggestions for workarounds for corporately owned life insurance. You can choose the best option based on the specifics of your scenario.

Premiums

  • Insurance premiums can be paid by the Corporation - show it as a non-deductible expense in the Corporate module for the applicable years.

Payout at Death

  • Payout to the Corporation: You can track the Death Benefit and/or CSV as a Real Asset. 
  • Payout to the Client or Spouse personally:  Enter the Life Insurance under the Client or Spouse under Insurance Policies.  Enter a $0 premium since that has been taken care of under the corporation, but here you can track the Death Benefit and/or CSV.
5

Does Snap track the Refundable Dividend Tax on Hand (RDTOH)?

Yes. RDTOH is a federal mechanism available to Canadian-controlled private corporations (CCPCs) that allows, under certain circumstances, for a corporation to be refunded a portion of income tax paid.

The RDTOH is segregated into 2 portions as per the 2018 budget; Eligible RDTOH, and Non-Eligible RDTOH.

Both RDTOH account balances are tracked annually (typically with the corporate tax return), and when dividends are paid out to the shareholder(s) of the corporation and if the RDTOH balance is positive, the corporation receives a dividend refund from one of these accounts depending on the situation.  

Eligible RDTOH

Payment of a taxable dividend (eligible or non-eligible) will entitle the corporation to a refund from this account. The Eligible RDTOH account tracks refundable taxes paid under Part IV on eligible portfolio dividends. 

Non-Eligible RDTOH

Refunds from this account will be obtained only upon payment of non-eligible dividends.  The Non-Eligible RDTOH tracks the refundable taxes paid on investment income (Part I tax) and non-eligible portfolio dividends (Part IV tax).   If the Non-Eligible RDTOH balance is zero, the corporation can obtain a refund from the Eligible RDTOH account when paying out non-eligible dividends.

To make it easy to take advantage of RDTOH, the balances are tracked automatically in Snap Projections. The balances are calculated based on your selected corporate portfolio settings and the corporate asset mix, and updated based on dividends declared from the corporation.

Non-Eligible RDTOH is generated when the corporate assets are comprised of cash, fixed income, and equity with the equity allocation settings excluding any Canadian dividends.  If the equity asset class allocation has any Canadian dividend allocation, you will see Eligible RDTOH generated. Canadian dividend-producing stocks are eligible dividends, but foreign dividend-producing stocks are non-eligible dividends.

RDTOH affects only investment income generated by the corporation and it does not impact the remaining corporate component's functionality; including the active business income section.

This means you can generate both active business income and passive business income (i.e. investment income) in one corporation and both income streams will be taxed separately. That way, in Snap Projections, a corporation can act as a Holding and an Operating company at the same time, and you do not have to resort to setting up multiple corporations to model active and passive business income separately, which can be a closer representation of the reality for your clients.

If you are aware of the existing balances for Eligible RDTOH and Non-Eligible RDTOH, you can enter these into the software. When entering a corporation for the first time, you have the opportunity to indicate the balance for each account.  To edit an existing corporation and enter the balances, select Scenario Setup --> Corporation from the Corporate Planning page.

Then enter the existing balances.

6

Why does it take a few years to fully deplete the Corporate Assets when paying out eligible or non-eligible dividends?

The reason that the Net Worth of the corporation does not fully deplete in one year has to do with certain assumptions that we have built into the calculations. In a year where a dividend is paid out, a dividend refund is generated which can be applied in the following year in the projections. We implemented the logic that way to stay consistent with other corporate calculations in the software and to avoid circular calculations which would have been created if the refund was allowed to be paid out in the same year. This means that you won't be able to fully deplete the investments by paying out a non-eligible dividend or eligible dividend in one final year. The corporation will take a few years to wind down (as shown below) but this does not impact the projections in any significant way. 

 If you prefer to show the investments being depleted in one final year, you can do the following.

Allow the Capital Dividend Account to build up and don't pay a non-eligible or eligible dividend in the final year. Instead, pay out a capital dividend in that final year to fully deplete the investments. 

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