How to Pay Yourself from a Corporation: Salary vs Dividends in Alberta
Note: This article is for informational purposes only and does not constitute legal or financial advice. Consult an accountant or tax advisor for your specific situation.
One of the benefits of incorporating is additional options for paying yourself as the owner: salary, dividends, or a combination of both.
Key Differences
Deductible Expense: Salary is deductible for the corporation, reducing taxable income. Dividends are paid from after-tax profits.
CPP and EI: Salary requires employer contributions to CPP and EI. Dividends do not.
Financial Planning: Salary builds RRSP contribution room and can help qualify for mortgages and loans. Dividends do not.
Administrative Burden: Salary requires a payroll account, regular reporting, and remittances. Dividends are simpler administratively.
Common Pitfalls
- Payments to Family Members: Must be reasonable for the work performed or you risk penalties from CRA
- Multiple Shareholders: Ensure your share structure allows for the payments you’re making
- Saving for Tax: Set money aside to cover tax obligations on dividends
- Record Keeping: Properly document payroll or dividend resolutions in the minute book
Balancing Act
Many business owners find that a balanced approach works best — a reasonable salary to qualify for financing and deductions, plus additional profits as dividends. Consult with financial experts to determine the best approach for your specific situation.
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