How and What to Pay Yourself as a Canadian Business Owner

Jamie Fryar
February 24, 2021

Figuring out your business owner’s salary can be quite challenging.

You may find yourself pondering if you should pay yourself salary or dividends or a mix of both?

Do you need to set up payroll? And how do you do that, and what else do you need to know? 

It’s normal when starting a business putting yourself on payroll may end up as a low priority.

In the beginning, taking out money for yourself when you need doesn't seem like a big issue that requires proper planning or structuring.   After all, you are your own boss, how difficult can it ever get to pay yourself for all the sacrifices you've made to get your business started and running?

But setting up a structured system to pay yourself the right amount, at the right time is a key factor in the health and longevity of your company, as well as how much you get to take home after tax is a crucial part of your company's success, and your take-home benefits.

How do I pay myself as a business owner in Canada?

Look, the reality is that you may end up finding the most challenging dilemmas of your business easier to solve than this common question, how do I pay myself as a business owner in Canada?

Undoubtedly, you've worked hard to give life to that dream of owning the business you've always wanted, and it's not too early to enjoy your years of hard work.

But how do you pay yourself what you are worth as a business owner and without putting your business at risk?

Although this has been an age-old problem that faces every small business owner, in this post, we will cover the basics of getting your first paycheck.

High level, getting paid as a business owner in Canada starts with registering a payroll account with the CRA (Canadian Revenue Agency).
The CRA is the body that administers tax laws for the Government of Canada.

The CRA will withhold the appropriate source deduction (CPP and Income Tax) from your pay whenever you get paid.
These deductions go to the Receiver General (CRA)

Setting up a payroll account is usually a simple process that can be started with a simple call to the CRA business line.
The payroll account you will be setting up will usually contain an RP instead of the RC at the end of your business number.

Now let's dig into the details.

Understanding your business type.

An excellent place to start your journey to getting your first paycheck is understanding your business's structure. 

Knowing your business’s entity will help you determine the possibilities and limitations associated with any payment mode you will adopt. 

To help you understand this much better, let's have a breakdown of some of the factors to consider when deciding how to pay yourself as a small business owner in Canada.

What is your profit? 

The only reason not to consider your company's profit margin before taking out money for your personal needs is if you are not interested in your company’s growth. It is good to pay yourself for your hard work, but should paying yourself bring your years of hard work down to nothing?

As a business owner, you need to determine how much revenue is coming into your business - and how many expenses you have to cater for. Taking out too much for yourself when your company's revenue is on the low could mean that you will get short on running cost, and keeping your business going may become a problem in the long run.

You might also think it's in your business's best interest to lower your wages, but it's also essential not to underpay yourself. Therefore, a critical look into your business profits can help you determine how and what to pay yourself.

How long your business has been running?

Paying attention to how long your business has been around is also an essential factor to note. If you are a startup, you might make less profit if your company has only been around for three years.

At times, how much you can pay yourself may not be determined by how long your business has been running as some companies can thrive incredibly within a few years of startup. 

The bottom line is that long years of running a business would often come with more experiences that can help you conclude what to pay and how to pay yourself, including the ability to predict future revenue and predictability of year-over-year growth metrics.

What is your worth?

When it’s your business, you will want to make sure that every I’s are dotted, and all T’s crossed - even if it means you have to work countless hours more than your employees.

If this is the situation for you, it is only fair that you would want to pay yourself more.

Understanding your business type, profit, how long your business has been running and the value you are adding to your business is a good place to start mapping out if to pay yourself a business owner salary or dividends.

What are the different ways to pay myself as a business owner in Canada?

Have you set up your small business as a corporation in Canada? Then, you have a choice as to what form of remuneration you wish to receive.

You can choose from paying yourself a salary, dividend, or a combination of both payment options. Either way, there are benefits and setbacks to any method you wish to adopt, and understanding them can help you come to the right decision as to what to pay yourself as a small business owner in Canada.

Should I pay myself a salary or dividends? 

Now, to the most anticipated question you've wanted to get an answer to; as a small business owner in Canada: What should I pay myself, salary or dividends?

It's quite understandable that every small business owner in Canada wants to know the most tax-efficient method of extracting profit from their own companies.

Paying yourself a business salary or wages as registered corporation means that you will have a set, recurring and steady personal income taxed by the state and federal government.

What are the benefits of paying yourself a salary or wages as a small business owner who has set up their business as a corporation in Canada?

What are the benefits of receiving a business owner salary?

Retirement Benefits:

If you are thinking about having a retirement plan, you should consider paying yourself a business salary. Paying yourself a business salary means that you will be eligible for the Canada Pension Plan (CPP). With CPP contributions, you can receive pension or retirement benefits as early as age 60.

This could also mean less personal income for now as CPP contributions are a cost for you and your cooperation. But, there will be more cash to compensate for all your year's contributions in the long run. If you paid yourself nothing but dividends when you turn 60, you might not be able to apply for your Canada pension. 

RRSP Benefits:

Salaries and wages are eligible income for RRSP - Deductible Registered Retirement Savings Plan. Additionally, your tax can be reduced by (RRSP) contributions as any income you earn in the RRSP is generally absolved from tax as long as the funds are kept in the plan.

Homeowner Benefits:

Paying yourself a business salary may favour you when you are attempting to qualify for a mortgage. Banks like to see an inflow of steady and predictable income, and a salary or wage can help you achieve that.

When a small corporate business applies for a credit or loan, the salary would be a better proof of income than dividends. Therefore, besides paying yourself alone, you can also choose to pay salaries to related employees such as spouses, children, or other family members.

What are the cons of receiving a business owner salary?

By choosing to pay yourself a salary, your cooperation must open an account with the Canada Revenue Agency (CRA) and file the paperwork which usually comes with a lot of stress on its own. The corporation will need to hold back source deductions (CPP and Income Tax) each time you are paid.

This usually incurs an additional administrative cost. Also, the cooperation must prepare and file a T4 for any employee that earned wages each year.

CPP contribution and other forms of retirement plan would mean that you are expected to pay double as the employer and employee, and may have to pay extra taxes to the government.

Should I pay myself dividends as a business owner?

After the company's tax earning, what the shareholders of the cooperation are paid is called dividends. Dividends often come with a dividend tax credit, making it carry less personal tax liability than business salaries or wages.

Dividends do not reduce the corporate tax paid as they are not a corporate expense. Dividends are a more straightforward and easy to implement payment option for small business owners in Canada.

Dividends can be declared at any time with cash being transferred from the corporation's account into a shareholder's account in as many transactions as required.

What are the benefits of paying yourself a dividend as a small business owner who has set up their business as a corporation in Canada?

What are the benefits of paying myself dividends?

Fewer chances of payroll penalties. 

When paying yourself dividends, the only thing you need to worry about is completing and filing your T5s on time once every year. This is different for salaries or wages where payroll remittances are relentless. 

When running your business on a payroll system, payments must be made timely each month as failure to do so may come with stiff penalties.

Easy to navigate.

By choosing to pay yourself dividends, you do not go through the stress of registering for payrolls and remitting deductions. 

You can easily declare a dividend and transfer money from the corporation's account into your personal account if you own 100% of your cooperation.

Lower cost.

In contrast to business salaries where you make contributions to CPP, have low income now, and spend later, a dividend is a direct opposite. 

By paying yourself dividends, you do not need to contribute to CPP, which means that there will be a reduction in corporate and personal cost and less administrative cost.

What are the cons of paying yourself dividends?

Paying yourself through dividends will make you ineligible to make contributions to retirement plan agencies. RRSP contribution room is not created because a dividend is not counted as "earned income."

Claiming other personal tax deductions for expenses may be impossible. For instance, child care expenses can be used to deduct salary, but not dividends.

With dividends as a payment plan for your small business in Canada, shareholders will have to contribute independently to prepare for retirement as dividends are not CPP eligible. 

How much do you pay yourself as a business owner?

As a business owner in Canada, you need to be aware of the small business limit, which is $500,000. This means that small businesses registered as cooperation are not allowed to earn over $500,000.

There is a much lower tax rate to be paid by any Canadian-controlled private corporation up to the business limit of $500,000 than on business earnings above this income limit. It is difficult to say what percentage you will be paying if you are a small business owner in Canada. The province in which your business operates matters too.

Therefore, you may need to consider paying yourself a mix of salary and dividends if your business has the possibility of earning an income over the Canadian business limit.

Before deciding if putting yourself on a self-employed payroll, taking out dividends for yourself, or paying yourself a mix of both options is necessary, there are other factors that you need to consider as your own boss.

You should consider

  • Income level
  • Cash flow needs
  • Projected annual earnings
  • Importance of personal cash for investments and tax deductions
  • Your age

At times, making the right decisions may be a lot easier with advice from financial planning experts.

Do I need to set up Payroll as a business owner in Canada? 

Setting up payroll as a business owner in Canada is crucial to paying yourself as your own boss. Deciding to receive an owner's salary means that you have considered every factor that serves as a basis for paying yourself, and you have chosen to receive a business salary as remuneration. 

Knowing what to pay yourself is one thing; putting a method that automatically caters for carrying out the payment effortlessly and subsequently is another. 

To meet up with payment deadlines, make sure you are not incurring any penalties, and having enough time to channel your efforts to other crucial aspects of your business. You should consider setting up payroll as a small business owner in Canada. It just makes your life a lot easier!

How do you set up payroll as a business owner in Canada?

The payroll process can be a tasking exercise as it involves how much to deduct when to deduct the amount, where to remit, and so on. You may need the hand of a very experienced accountant to pull this through without any setbacks. 

Depending on your company's size, you may want to consider setting up a payroll account with the Canada Revenue Agency (CRA). 

Another great way to set up payroll as a small business owner in Canada is by outsourcing this task to experienced payroll service providers like Push that have been around for years, simplifying payroll processes for small and large businesses in Canada.

Final verdict.

By now, you must be very sure of what system of payment fits your business and your personal plans. Knowing what to pay yourself may still require that you seek professional help from an accountant, a financial planner, or a tax lawyer.

Choosing what to and how to pay yourself is a choice that should be made considering every factor that has been discussed in this article. There is no right or wrong way to pay yourself as a business owner. 

What you need to understand is how does your payment plan benefits you? Do you prefer a short-term or long-term benefit? Are you capable of taking out money from your dividends to save for your future retirement plan?

Are you interested in a simple and hassle-free way of taking out money for yourself from your cooperation, or can you cope with the paperwork from paying yourself a business salary?

Once you can answer any of these questions, you should already have your first paycheck on its way!

This document is provided by Push Technologies Inc. ("Push Operations") for information purposes only. This is not an official or legal document and should not be taken as legal advice. Push Operations does not guarantee or warrant the accuracy or completeness of the information provided. For the most accurate and up-to-date information, please check with the proper governing authority.


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