Last updated: Apr. 28, 2021
There are 3 ways to take money out of a corporation:
The method you use to pay yourself personally from your corporation has an impact on many different things – and not just your personal income tax owing. While dividends likely create the lowest personal tax liability, they don’t allow you to create contribution room in your RRSP, build up CPP or claim WCB if something happens. The form of your personal compensation can affect what you receive from government programs and credits as well as your ability to qualify for loans from lending institutions.
Let’s look at the differences below, and what each option could mean for you when deciding how to structure your compensation.
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Should I pay myself a business salary?
Should I pay myself dividends?
You might pay slightly less tax on dividends than on a salary, since you receive a dividend tax credit that you can help lower your overall tax owing.
So how should I pay myself as a business owner?
It depends on your individual business and family situation.
Dividends are a more flexible payment option and you don’t have to pay into CPP so you’ll reduce your costs that way.
However, you’ll need to be careful about contributing to your own retirement savings.
And you won’t be creating contribution room in your RRSP by issuing yourself dividends.
Also, dividends aren’t accepted as salary on loan applications if you’re applying for a mortgage or other lines of non-business credit.
There are many other factors like other income sources that can impact whether you should be paying yourself a salary or dividends. Speak to a tax professional to find out which option is right for you.
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Our simple, easy-to-understand toolkit will teach you how to get organized for tax season. Download your free tax preparation toolkit to learn what information and key documents you need to prepare so you’re ready for the tax filing deadline.
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