Another big milestone in my business adventures: I paid myself for the first time! Not bad, considering this is my second fiscal year. I’ve been nervous about this for a while because I wanted to make sure that the business had a emergency fund of its own, especially when it comes to taxes. I also wanted to get a little more confidence in accounting before opening up a payroll account and remitting the proper amounts. Well, now I’ve done it!
Most of the salary/dividend comparisons lean heavily towards dividends to increase the tax-free income available, although some include a little salary in order to take advantage of the exemptions for tax and for CPP. Since dividends use after-tax dollars, I don’t need a high income to support my lifestyle, and I have some unused RRSP deductions (that’s what happens when you keep maxing it out, and you end in a low-income year!), I crunched my own numbers and figured out that an all-salary payment would be the best for me right now, even with the mandatory CPP contributions.
To keep things simple, I chose an annual payroll period. I didn’t need the regularity of a bi-weekly or monthly paycheque, and it was easier for me to deal with one cheque and one set of remittances. It’s not a popular option, so I called the Canada Revenue Agency (CRA) a few times to check that I was doing things correctly. They told me to use the payroll calculator’s 10-payment option and multiply everything by 10. I wrote myself a business cheque for the amount that I wanted to draw out, deposited it… and then realized that I’d written down the nice round gross number instead of the net amount that the provided calculator had provided, so I went back to the payroll calculator and jiggled the numbers around until it gave me the correct remittances for the net amount I received. I filed my remittance through the CRA’s online My Payment system, and in January next year, I’ll file a T-4 tax form.
Because we’re expecting significant medical expenses that W-‘s extended benefits won’t cover, I also set up a private health service plan (PHSP) with Brock Health. Brock has a $100 set up fee and a 5% admin charge for qualifying medical expenses, but it may let me convert the medical expenses into before-tax business expenses. It doubles my up-front cost, but I have both the business and the personal buffers to absorb that.
It turns out that you can set the effective date for a PHSP to anything that matches a 12-month period ending in the current fiscal year. Since my fiscal year started on October 1, 2012, that meant that I can probably claim expenses going back to incorporation (or maybe even earlier, but let’s not be greedy here).
I felt the twinge of buyer’s remorse after signing up for Brock, as further research turned up Promedent, another PHSP provider that charges a $150 setup fee with a flat fee of $50 per claim. Going with Promedent could save me a few hundred dollars – probably even worth the cost of cancelling and signing up there instead. However, there’s a lot more on the Internet about Brock Health than about Promedent, so if I’m going to experiment with this, I trust Brock a bit more. Brock also promises claims processing in 10 days (within 5 days of receipt) while Promedent processes claims in ~30 days, and the turnaround time might come in handy for feedback and getting things right.
Large medical expenses usually trigger audits, so we’re going to carefully file all the receipts, dot all the is, cross all the ts, and Scan All the Everything! I’m a little worried about what the CRA considers a reasonable health benefit for a corporation, but I may as well claim whatever I can and then work things out.
Let’s see how this goes!