So you have gone through the process of incorporating and have finally reached the super fun part: PAYING YOURSELF WOOOOOO.
When it comes to paying yourself as a corporation, you have two options: You can either pay yourself a salary or you can pay yourself dividends.
Which option makes the most sense for you is influenced by your level of income, your corporate structure and of course your accountant’s advice.
Here is an overview of what each option has to offer.
This option is usually the more expensive of the two from a company perspective.
To set this up you will have to add yourself to the company payroll and ensure the company pays all the applicable taxes on your behalf and issues you a T4 annually.
The company will have to pay payroll taxes on your behalf
You accumulate more room in your RRSPs to save on personal taxes
This one requires less work to set up but can get out of hand if you don’t keep track of your spending.
To make this one work you have to:
- Get a bookkeeper to figure out how much money you took from the business
- Your accountant will declare the money you have taken from the company as a dividend & issue you a T5 from the corporation
You need to keep better track of your withdrawals and can pull out more income than intended increasing your tax rate.
You avoid paying payroll taxes.
- You cannot be a contractor to your own corporation because doing so creates a loophole that causes the Canada Revenue Agency (CRA) to miss out on taxes. Naturally, they have discovered this loophole and shut this option down!!!
As always, when in doubt or unsure of which option makes the most sense for you talk to a professional. A small investment on advice can provide big savings down the line.