If you want to take money out of a business, specifically a corporation, you might be wondering whether it is a better choice to utilize dividends, or to pay a salary. It’s important to look carefully at what is best for your company, and then learn about how to go about paying yourself a salary, if that is the route you choose to go down.

Why would you want to pay yourself a salary? If you simply take cash out of your corporation, this isn’t classified by the CRA as either a dividend or a salary. It is considered to be something called a shareholder loan. This means you are supposed to pay the cash back, because you are literally borrowing money.  

How to Pay Yourself a Salary

If you are opting to pay yourself a salary, you will need to issue a T-slip by the end of February every year. This tells the CRA that a salary has been taken. You should do the same if you want to withdraw a dividend. The types of slips vary for each payment, e.g. a T4 is for a salary, and a T5 is for a dividend.

The work doesn’t stop there. You also need to record the remittance on the payroll system. This ensures the correct amount of tax to be taken from the salary. This will usually be CPP and income tax.

There are a few ways you can declare that a salary has been paid:  

•   Bonus at the end of the year - when you do your year-end taxes, you’ll declare that you have given yourself a bonus as a lump sum. Use a payroll calculator (there are many online) to work out how much of a remittance you need to pay, and how it will affect your personal tax return.

•   Remittances at periodic times - If your business would struggle to make lump sum payments, you can make remittances throughout the year, e.g. quarterly. This ensures you are paying yourself at regular times and manages your companies finances.

•   A regular monthly remittance - This is very similar to regular payments to employees and you will need to use a monthly payroll system, with an online calculator to help you in terms of how much tax to pay. This will automatically be deducted every month, and your year-end taxes will be much clearer as a result.

If you’re not sure which option is best for you, or how to really work it out to your own benefit, it’s a good idea to talk to an experienced and registered accountant to get the best advice. We all have different circumstances, and an accountant will be able to advise you the best.

You should also make sure you are using high quality payroll software, which will automatically work out how much remittance on tax you need to make and transfer the amount without you having to lift a finger. Remember to shop around for the best package to suit your needs.

Contact your Accountants today click on this link —> https://capexcpa.com/contact

- The Capex Team