by James Pendergast

Administration, Salary, TaxJuly 4, 20160 comments

Salary vs. Dividends

If you have an incorporated business you are able to pay yourself in any way you would like. There are various methods of getting money out of your corporation. Some examples include:

• Salary;
• Dividends;
• Loans;
• Director Fees;
• Management Fees; and
• Return of Capital.

Whether you should pay yourself salary or dividends depends on many factors. However, if your only concern is paying the least amount of taxes today, then dividends are probably the correct choice.

Take this example for the 2015 taxation year.

Example

Peter owns a corporation. Peter pays himself a salary of $89,000 during the year. Taking into account all factors, Peter and his corporation would end up paying $28,703.35 in taxes to the Canadian government. This includes Employment Insurance, Employer Health Tax, and Canada Pension Plan payments.

If Peter took no salary, and paid himself a dividend of $89,000 then his total tax payable would only be $11,310.59.

This is quite a difference. However, you should keep in mind that without taking a salary, Peter would not be contributing to his Canada Pension Plan, nor would he be creating any RRSP room.

If you are looking to pay the least amount of taxes possible for you and your corporation, you are looking for a tax plan. Here at Rosen Kirshen Tax Law we will draft a plan that works for you, your corporation and your family. Give us a call today to see how much we can save you!

CRA Resources

Eligible Dividends

Canada Pension Plan

Employment Insurance

Payroll Deductions and Remittances

Payroll Deductions Tables

**Disclaimer

This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer.