How do you pay yourself if you own a corporation?

To pay yourself a wage, the corporation will need to register a payroll account with CRA. Each time you are paid, the corporation will need to withhold source deductions (CPP and Income Tax) from your pay. These source deductions are then remitted to the Receiver General (CRA) on a regular basis.

Are dividends considered income for tax purposes?

Generally speaking, dividend income is taxable. If you own a stock, such as ExxonMobil for example, and receive a quarterly dividend (in cash or even if it is reinvested), it would be taxable dividend income. Or, for example, let’s say that you own shares in a mutual fund and it distributes dividend income every month.

How do I pay myself dividends from my corporation?

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 and record it in your corporate minute book and file a T5 return.

Do dividends count as earned income?

All dividends paid to shareholders must be included on their gross income, but qualified dividends will get more favorable tax treatment. A qualified dividend is taxed at the capital gains tax rate, while ordinary dividends are taxed at standard federal income tax rates.

Should I pay myself a wage or dividend?

Salary will count for Super Guarantee Charge purposes, whereas Dividends do not (so an advantage for the employee, but only a deductible cost for the company). Salary assists with financing purposes. If you are planning on applying for a line of credit or a mortgage, then paying yourself a salary will help you qualify.

Can you pay dividends to yourself as a shareholder of a corporation?

If you are the sole owner and shareholder of your corporation, you can make regular dividend payments to yourself in addition to being paid your corporate salary. Used this way, the dividends resemble the draw paid to partners in a partnership.

What happens to after-tax earnings when a company pays dividends?

The owners can retain the after-tax earnings for use in the business, or pay shareholders a cash dividend. If a dividend is paid, the dividend income is added to other sources of income on the shareholder’s personal tax return.

How does salary plus dividends compensation affect taxes?

If your business was a partnership or sole proprietorship, the same tax percentage is collected on net income and called self-employment tax. The salary plus dividends compensation plan allows you to pay fewer taxes than if you did not have the corporate structure.

How do I pay myself as a corporation?

If you elect to organize your company as a corporation, how you pay yourself is handled differently than with a partnership or sole proprietorship. With the corporate structure, you get to pay yourself a salary and any additional profits will be paid out as dividends.