How to Pay Yourself as a Small Business Owner?Brian Jang ON July 25, 2016
As the owner of a Canadian small business, you will want to know the different ways you can pay yourself. After all, it’s part of the benefits of the “be your own boss thing,” right? When it comes to enjoying the fruits of your labour, there are a few ways to do this. So, without further ado, let’s dive right in and find out how to pay yourself.
One of the ways to pay yourself as a business owner is with a salary. To do this, you will first have to create a payroll account with the Canada Revenue Agency (CRA). It is a fairly straightforward process that can be done by contacting the CRA business line.
Once your payroll account is set up, you can pay yourself a salary from your corporation. If you add yourself to the company payroll, you will be able to contribute to an RRSP, as well as pay into the Canada Pension Plan (CPP). But keep in mind that a salary is completely taxable, meaning you could be increasing your tax load.
You can also pay yourself by receiving dividends. Dividends are paid out of the corporation’s retained earnings or profits. You can do this by setting up an RZ account with the CRA. Deciding to go this route may result in you paying less personal tax, but you won’t be allowed to contribute to an RRSP.
Additionally, you can pay yourself with a shareholder’s loan account. You simply withdraw funds from the company bank account when you need it. As long as you don’t take out more than what you originally contributed to the business, you can withdraw funds from the shareholder account on a tax-free basis. However, if you take out too many funds from your business and you wind up owing money, you’ll have one year from your fiscal year-end date to repay your outstanding debt or it will be incorporated in full as part of your income.
Before you sign off on how you are going to pay yourself, remember, each of these methods come with their own levels of complexities. To get a clearer picture of which option is right for you, it’s always a good idea to talk to your accountant.
Are you the owner of a small business looking for the best way to pay yourself? Contact BCJ Group, Chartered Professional Accountants for a free consultation today!
- Who Can Claim Moving Expenses?
- What are the Implications of Being Declared a Personal Services Business?
- How to Charge Provincial Sales Taxes on Online Sales
- Why You Should Rethink Your Accounting Strategy
- What Can Happen If You Submit Your Taxes After the Deadline?