Salary or dividends? Small business owners should review their compensation strategy before year-end

Salary or dividends? Small business owners should review their compensation 
strategy before year-end 
CIBC offers guidance for small business owners on withdrawing funds from their 
corporations as salary or dividends 
TORONTO, Dec. 10, 2013 /CNW/ - CIBC (TSX: CM) (NYSE: CM) - Small business 
owners risk paying too much in income tax by making the wrong decision on 
whether to withdraw funds from their corporations as salary (bonus) or as 
dividends, says CIBC's tax and estate planning expert, Jamie Golombek. 
In a new report, Mr. Golombek offers guidance to small business owners on the 
most efficient way to pay themselves from their corporations, in light of 
recent and future changes in tax rates and rules. The report assesses the 
impact of the tax rate advantage, the tax deferral advantage and the 
tax-sheltering benefits of an RRSP as factors that can affect the compensation 
decision for small business owners. 
"Each year, small business owners who run their businesses through 
corporations can choose to receive compensation from their corporations as 
either salary or dividends. This year, changes such as increases in the 
highest personal marginal tax rates in several provinces and modifications to 
taxation of dividends will significantly impact the compensation decision," 
says Mr. Golombek. 
For small business owners who need to withdraw funds in 2013 
"When small business owners need to withdraw funds in 2013 to pay for personal 
expenses, the 2013 tax rate advantage is an important factor in the 
compensation decision," says Mr. Golombek. "Paying dividends can generate tax 
savings when there is a tax rate advantage." 
Paying dividends is generally the best option for SBD Income (which is income 
up to the small business deduction limit of $500,000 in most provinces) due to 
the tax rate advantage in most provinces, which ranges from 0.56 per cent to 
4.54 per cent in 2013. For ABI (which is active business income above the 
small business deduction limit), paying salary is generally a better option 
due to the 2013 tax rate disadvantage in most provinces, ranging from 0.47 per 
cent to 5.88 per cent. 
For small business owners who can afford to leave money in the company 
"For small business owners who don't need to withdraw funds in 2013, it can 
pay to defer dividends to a future year," says Mr. Golombek. Although there 
will be a tax cost associated with paying dividends after 2013, there is a 
significant tax deferral advantage that may help to offset this cost. This 
year, the tax deferral advantage ranges from 25.00 per cent to 35.50 per cent 
across the provinces for SBD Income, and from 13.30 per cent to 23.07 per cent 
across the provinces for ABI. Mr. Golombek added, "If investing the deferred 
amount will generate enough income to offset the tax cost, then paying 
deferred dividends is the better way to go; otherwise, small business owners 
should still withdraw funds in 2013." 
Tax-sheltering benefits of an RRSP 
While paying dividends may be advantageous in many cases, distributing 
corporate income as salary rather than dividends creates earned income that 
allows small business owners to contribute to an RRSP. Small business owners 
may wish to consider paying sufficient salary to maximize RRSP contributions, 
particularly if the RRSP invests in higher rate of return, highly-taxed 
investments over a long time horizon. 
"Taxation rules for businesses are quite complex and can change regularly," 
says Mr. Golombek. "Business owners should consult with a tax professional and 
a financial advisor for a complete analysis of all factors in the compensation 
More details along with rates for 2013 and 2014 for all provinces are 
available in Mr. Golombek's report, The Compensation Conundrum: Will it be 
salary or dividends? 
About CIBC 
CIBC is a leading North American financial institution with nearly 11 million 
personal banking and business clients. CIBC offers a full range of products 
and services through its comprehensive electronic banking network, branches 
and offices across Canada, and has offices in the United States and around the 
world. You can find other news releases and information about CIBC in our 
Press Centre on our corporate website at

Kevin Dove, Head of External Communications, 416-980-8835, 
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CO: Canadian Imperial Bank of Commerce
ST: Ontario
-0- Dec/10/2013 13:00 GMT
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