How To Get Money Out Of Your Business In Retirement

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    From the payment of the salary to the receipt of income

    Entrepreneurs usually pay themselves a salary during their working years. A salary is deducted from company income, reducing the corporate tax payable on that income. And that salary is then personally taxed. When a business owner retires, they typically run out of business income generated by their company. They may have cash or investments in their company, or they may have saved with a separate investment holding company that generates investment income.

    Retired business owners sometimes keep paying a salary when they probably shouldn’t be accepting a paycheck at that point. Salary can be deducted from operating income, but it may not be appropriate to deduct from a company’s investment income. More importantly, paying a retirement salary may not be tax efficient.

    In addition, deductions are generally required in order to pay a salary, including contributions to the Canada Pension Plan (CPP), which are also offset by the company. The grand total is 5.45% of salary up to $ 61,600, with a basic exemption for the first $ 3,500. Paying CPP contributions has the potential to increase a retiree’s CPP pension, but not necessarily if they have already reached the maximum entitlement.

    The company will assume the costs

    Some business owners continue to pay for expenses from their business. These expenses can include a cell phone, car costs, internet, or other charges. Some of these expenses may have been personal before retirement, but just because you have a business doesn’t mean you can continue to use it to pay certain expenses without personal impact.

    Personal expenses paid by a company, including those that were legitimate and fully deductible prior to retirement, may need to be added to your personal income when you retire.

    CPP, OAS, and Business Income

    You can take advantage of CPP and old-age pensions (OAS) at the age of 60 or 65. Each can be deferred until the age of 70, which leads to an increase in both pensions.

    Some retirees would benefit from deferring these pensions whether or not they have a business, especially those with long life expectancies, no other defined benefit pension sources, or conservative risk tolerance.

    CPP and OAS deferral can allow a business owner to run out of business assets in their 60s to wind up their business, especially when cash and investments are modest.

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