Question

Which of the following statements correctly describes an advantage of having the principal shareholder of a business receive a salary rather than dividend income?

a) Only by taking a salary can the principal shareholder minimize the overall tax cost of extracting money from the corporation.

b) Taking a salary allows the principal shareholder to contribute to a Registered Retirement Savings Plan (RRSP).

c) Taking a salary reduces the shareholder’s cumulative net investment loss (CNIL) balance, which will help ensure that the lifetime capital gains deduction is maximized when the shares are sold.

d) The amount of salary taken does not have to be considered reasonable in order to be considered fully deductible by the CRA.

Answer 1

Solution

Option C is the best statement to describes an advantage of having the principal shareholder of a business receive a salary rather than dividend income as taking a salary reduces the shareholder’s cumulative net investment loss (CNIL) balance, which will help ensure that the lifetime capital gains deduction is maximized when the shares are sold.

for this firstly we need to understand what CNIL is a cumulative total of Investment income & Investment Expenses.It is eligable for small business. cinil is a balance to keep it enter your cinil expense & income balance in.The closing balance of trhis will be carry forward to become the new opening balance of the next year.