As the owner of a corporation, there are several options as to how you could pay yourself. This is advantageous to you because it allows you to tax plan to result in the best outcomes for both your personal tax and corporate taxes. See below the advantages and disadvantages to each method:
Dividends are a sum of money paid by a corporation to its shareholder.
|· Dividends are taxed at a lower rate than salary||· Not contributing to CPP may affect your retirement|
|· Very simple – essentially just take out the money from the corporation, account for this with a T5||· Does not allow you to contribute to RRSPS, which also could impact your retirement|
|· Not having to remit any CPP or income tax||· Does not allow you to claim other personal income tax deductions|
|· Can be declared at anytime||· Cannot be used as a deduction to the corporation|
- Salary and Bonuses
A salary is a regular fixed payment and a bonus is an extra payment added to wages/ lump sum salary payment.
|· Salary/bonus will give you a personal income on your personal tax return, account for this with a T4||· Must remit CPP /income tax – before the 15th of the month after salary/bonus was paid out|
|· Allows you to claim personal income tax deductions||· Would have to remit both CPP employee and employer portions|
|· Allows you to contribute to CPP and RRSPs||· Salary/bonus is 100% taxable income|
|· Can be used as a business deduction for the corporation – most costs associated with payroll can be a business expense||· Opens the corporation to more interest/penalties if payroll remittance is not done correctly|
Ultimately, there are advantages and disadvantages to both route; however, most business owners may utilize both routes together is the best choice for them. The best way to take advantage of your options and find the best way to pay yourself for you and your business is to create a tax plan. Visit us at Jibe for your personalized tax plan created by our chartered accountant, T Slips, and both corporate and personal tax returns.