Frequently Asked Questions About Salary and Dividends by Owners of Corporations
As an accountant and small business financial consultant, one of the most common areas of confusion and questions by small business corporation owners revolves around how to pay themselves and if one way is preferable to another. I have addressed some of them in my blog posts on the factors to consider when choosing salary or dividends and the types of ways to structure your remuneration . There are however specific questions that common up frequently:
Consider These Factors When Deciding Whether to Take Salary or Dividends
One of the most common questions I get asked by corporate business owners is whether to take salary or dividends and how much tax can be saved by taking only dividends. The answer unfortunately, like most issues relating to tax, is that it depends on your circumstances. The concept of integration in the Canadian tax system theoretically strives to make taxes payable the same whether you take salary or dividends or a combination of both. In reality, there is always a difference as everyone’s tax situation is distinct.
Should You Pay Yourself a Salary or Dividend? 7 Considerations For Small Business Owners
While incorporation has many benefits for small business owners, it does introduce additional complexities that are not faced by registered businesses. Unincorporated business owners are essentially taxed on their net business income, which allows for more time to devote to tax planning and how to spend all of your richly deserved profits. Incorporated business owners, on the other hand, cannot just withdraw cash from their businesses as the need or whim arises. There needs to be a formalized structure in place which usually takes the form of either salary or dividends. Either type of remuneration has tax and other implications that need to be considered before making a decision.