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I have a small business that is now dormant since I switched to full time employment This is a small inc created before the professional corporations were defined by the Canada Revenue Agency (not sure if this matters) Right now the only form of income is passive income from invested retained earnings I would like to know if it is possible to pay dividends in this situation The inc also has some minor losses due to the fact that it owns one of our cars so there is deprectiation that I have been carrying over for like 2 years and maintenance (car still under warranty so there is mandatory services)

Please reply with some references I would like to read more about it

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Yikes. I highly suspect your corp has under-reported income in the past, if you are claiming personal vehicle costs without corresponding business income. Seek paid advice from a tax expert about filing a "voluntary disclosure" to make things right before you do anything else.

Dividends can be paid out of passive income, but it seems quite possible that doing so and/or closing down your dormant corp will trigger an audit that could show potential filing errors in past returns.

This is well beyond the scope of questions fully answerable on this site. Pay an accountant/ lawyer for good advice. I would be surprised if it costs you under $5k to get everything wrapped up [including closing up your corp], if it does turn out that adjustments to past returns are necessary.

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  • Thanks for the answer Grade! That was a car used for work only. We have another car for our needs. So no there is no under reported income. The car is owned by the corp. We are considering selling it, especially that we are now both WFH as full time employees Are there any references I can read about paying dividends in this situation?
    – MiniMe
    Commented Jan 14, 2022 at 14:36
  • And no we did not claim any costs not even for this car while the corp was dormant
    – MiniMe
    Commented Jan 14, 2022 at 15:15
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    Hire an accountant.
    – Grade 'Eh' Bacon
    Commented Jan 14, 2022 at 18:04
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    @MiniMe ... Would you like to speak to my manager? Your question is either incredibly straight forward (anyone comfortable with filing their own T2 should be able to determine this, so much that I'm scratching my head how paying dividends out of passive income is even in question), or incredibly complex (because of what, again, seems to be a pretty steep misunderstand of what your corporate obligations are).
    – Grade 'Eh' Bacon
    Commented Jan 14, 2022 at 21:06
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    @MiniMe You know you need to file corporate returns annually, right? Even if there's no income? And investment income is taxable to your corp [at a higher rate than if you received them personally - you get a refund back when you pay divs out from the corp to you personally, as a punitive method of preventing tax deferral on investment income]. Why wouldn't you want to liquidate your corp? You want to file those returns forever? Failure to file can result in penalties from CRA, as well. And I no longer practice tax professionally; this is no way an attempt to drum up business.
    – Grade 'Eh' Bacon
    Commented Jan 16, 2022 at 18:37

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