Paying Yourself: Salaries vs. Dividends – Part One

Get in Touch
by Kent Greaves
Kent Greaves 144 Comments

The Pros and Cons of Salaries

Today’s blog is the first of a two part series on paying yourself as a Small Business Owner — should you pay yourself a salary or in dividends?

You’ve started your own business and you’re finally starting to make some money — your suppliers and staff are being paid, as well as your bills, which means it’s time to take some money out for yourself. So, is there a difference between the money you earned while working for someone else and the money you’ll earn working for yourself? Not really — but there is a difference in how you collect that money. Today we’re talking about the pros and cons of taking a salary as a small business owner.

In terms of how often you get paid, there is no difference at all! Set yourself up to receive a pay cheque as often as your other employees do (for simplicity’s sake) such as bi-weekly, monthly or perhaps quarterly.

When it comes to writing the cheque, what’s easier? With a salary, you will have to manage payroll, which can be time-consuming and for many small business owners, a little overwhelming. Talk to Kent Accounting about our Payroll Service Bundles and take one more thing off your to-do list. As for overall money management, when paying yourself is a part of your monthly rhythm, it’s a lot easier to control and monitor how much you’re spending and how often you’re taking money out, as opposed to those who take money out of their business ad hoc.

In the short-term, taking a salary will mean you will pay a slightly higher tax rate. You’ll pay CPP (Canadian Pension Plan) and income tax off of every cheque (generally speaking, business owners and their immediate family members are exempt from EI). As a small business owner, remember not to be late with remitting your source deductions to the CRA, as there are penalties every time you are late (10% the first time you’re late, 20% the second time you’re late).  To avoid remittance penalties, contact Kent Accounting and let us manage your payroll services and your source deductions.

However, salaries give you some great tax advantages in the long-term — namely, the right to receive a pension when you retire and access to RRSP room.

CPP: by contributing to CPP, you gain eligibility to receive CPP payments starting as early as age 60. While the payout amount varies from person to person, many Canadians over 60 years receive approximately $1,200 per month. CPP is a savings safety net that ensures all Canadians can have a comfortable retirement.

RRSP:  salary also allows you room to contribute to your RRSPs (up to 18% of your calculated total yearly salary) with a maximum, in 2016, of $26,010.  When you contribute to an RRSP, you get a refund on any tax paid on the income you earned.  Many of our clients receive 30% or more back for each $1 they contribute… so a $10,000 RRSP contribution could get you a $3,000 refund. That refund would pay for a nice vacation for you!

Note that the refund amount depends on your total income for the year. Further, investments in an RRSP grow tax-free. Not sure what that means in terms of dollars and cents? It’s such an important topic I wrote a separate blog about it (click here to read it). RRSPs are considered by many to be the best tax deduction available to Canadians.

There are some rigid rules to salaries that can’t be discounted. With salaries, you can only provide pay cheques to people who have provided services for your company, so your salary is yours alone. Also, once you’ve reported your total salary to the CRA, there’s almost no flexibility in changing how much you earned for any given year, and that lack of flexibility can be challenging for some.

We strongly encourage you to discuss your remuneration with a qualified small business accountant.  Want to talk to us about it?  Contact us here.

 

Disclaimer: Tax and legal rules change frequently and can depend on your individual circumstances. The above is not to be relied upon as legal nor tax advice and is meant for information purposes only. Please consult a legal and/or tax professional.

— 144 Comments —

  1. Nice article. Its very easy to follow. Also, for business owners looking to minimize their tax obligations, investing in Canada’s top flow through fund can give you significant tax savings, as it is up to 115% tax deductible.

  4. You actually make it seem so easy with your presentation but I find this matter to be really something which I think I would never understand.

    It seems too complex and extremely broad for me. I am looking forward for your
    next post, I will try to get the hang of it!

  6. I’m curious to find out what blog platform you have been working with?
    I’m experiencing some small security issues with my latest site and
    I’d like to find something more risk-free. Do you have any suggestions?

  9. Thank you, I have just been searching for information about this topic for a while and yours
    is the best I’ve found out till now. But, what in regards to the conclusion? Are you sure in regards to the supply?

  11. Good day! I know this is kinda off topic but I was wondering if you knew where I could find a captcha plugin for my comment form?

    I’m using the same blog platform as yours and I’m having trouble finding one?

    Thanks a lot!

  13. hello there and thank you for your info – I have definitely picked up something new from right here.
    I did however expertise a few technical issues using this website,
    as I experienced to reload the website a lot of times previous to I could get it to load properly.
    I had been wondering if your hosting is OK?
    Not that I’m complaining, but sluggish loading instances
    times will sometimes affect your placement in google
    and could damage your quality score if ads and marketing with Adwords.

    Anyway I am adding this RSS to my e-mail and can look out for a lot
    more of your respective interesting content. Ensure that you update
    this again very soon.

  14. This is really interesting, You’re an overly skilled blogger.

    I have joined your feed and stay up for looking
    for more of your great post. Additionally, I’ve shared
    your website in my social networks

  15. Hey There. I found your weblog the usage of msn. This is an extremely well written article.
    I will be sure to bookmark it and return to learn extra of your helpful info.

    Thanks for the post. I will certainly comeback.

  16. What’s up it’s me, I am also visiting this website regularly, this site is
    in fact pleasant and the viewers are truly sharing fastidious
    thoughts.

  17. You really make it appear really easy along with your presentation however I find this topic to be
    really something that I believe I’d never understand. It sort of feels too complicated and very extensive
    for me. I’m having a look forward in your subsequent submit,
    I’ll attempt to get the hang of it!

  20. We’re a bunch of volunteers and opening a brand new scheme in our community.
    Your web site offered us with valuable info to
    work on. You have performed an impressive task and our whole
    neighborhood will likely be thankful to you.

  21. An impressive share! I’ve just forwarded this onto a colleague who was doing
    a little homework on this. And he in fact ordered me breakfast because
    I discovered it for him… lol. So let me reword this….
    Thanks for the meal!! But yeah, thanx for spending time to discuss this topic here on your blog.

  22. Hello! I could have sworn I’ve been to this blog before but after checking through some of the post I realized it’s new
    to me. Anyways, I’m definitely happy I found it
    and I’ll be bookmarking and checking back often!

  23. Hi I am so excited I found your website, I really found
    you by error, while I was researching on Digg for something else, Nonetheless I am here now and
    would just like to say thanks a lot for a incredible post and
    a all round exciting blog (I also love the theme/design),
    I don’t have time to read through it all at the minute but I
    have bookmarked it and also added your RSS feeds, so when I have time
    I will be back to read a great deal more, Please do keep up the excellent
    b.

  25. I’m extremely impressed with your writing skills and also
    with the layout on your blog. Is this a paid theme or did you
    modify it yourself? Either way keep up the excellent quality writing,
    it’s rare to see a great blog like this one today.

  27. The next time I read a blog, I hope that it won’t fail me as much as this particular one. After all, Yes, it was my choice to read through, but I actually believed you would probably have something interesting to say. All I hear is a bunch of moaning about something that you could fix if you were not too busy searching for attention.

  30. I like the valuable info you supply on your articles.
    I will bookmark your weblog and test once more right here regularly.
    I’m fairly certain I will be told many new stuff right right here!
    Best of luck for the next!

  33. Hello, i believe that i noticed you visited my weblog so i came
    to return the want?.I am trying to find things to enhance
    my site!I guess its good enough to make use of a few of your ideas!!

  35. Excellent beat ! I wish to apprentice while you amend your site, how could
    i subscribe for a blog web site? The account helped me a acceptable deal.
    I had been tiny bit acquainted of this your broadcast provided bright clear concept

  36. Great post. I was checking continuously this blog and I’m inspired!

    Extremely helpful info particularly the last section :
    ) I maintain such information much. I used to be looking for this particular information for a very long
    time. Thank you and good luck.

  39. This is very interesting, You’re a very skilled blogger.
    I have joined your feed and look forward
    to seeking more of your fantastic post. Also, I’ve shared
    your website in my social networks!

  42. The other day, while I was at work, my cousin stole my iPad and tested to see if it can survive a thirty foot drop, just so she can be a youtube sensation. My apple ipad is now broken and she has 83 views.

    I know this is completely off topic but I
    had to share it with someone!

  44. Hey! This is my 1st comment here so I just wanted to give
    a quick shout out and say I genuinely enjoy reading your articles.
    Can you recommend any other blogs/websites/forums that deal with the same topics?

    Thank you!

  46. Hey there just wanted to give you a quick heads up.
    The words in your post seem to be running
    off the screen in Firefox. I’m not sure if
    this is a formatting issue or something to do with web browser compatibility but I figured I’d post to let you know.

    The style and design look great though! Hope you get the problem fixed soon. Cheers

  52. I found your blog web site on google and verify a few of your early posts. Continue to maintain up the excellent operate. I just further up your RSS feed to my MSN News Reader. Searching for ahead to reading more from you in a while!…

  56. I’ve learn some good stuff here. Definitely price bookmarking for revisiting. I surprise how so much effort you put to create this sort of magnificent informative site.

  57. Hey, you used to write magnificent, but the last several posts have been kinda boringK I miss your tremendous writings. Past few posts are just a little bit out of track! come on!

  58. hello!,I love your writing very so much! proportion we be in contact extra approximately your article on AOL? I require a specialist in this space to solve my problem. Maybe that is you! Looking forward to see you.

  59. What’s Happening i’m new to this, I stumbled upon this I have found It absolutely useful and it has aided me out loads. I hope to contribute & assist other users like its helped me. Great job.

  63. Its like you read my mind! You seem to know so much about this, like you wrote the book in it or something. I think that you could do with a few pics to drive the message home a bit, but other than that, this is fantastic blog. A great read. I will certainly be back.

  68. I have been absent for a while, but now I remember why I used to love this site. Thank you, I will try and check back more frequently. How frequently you update your site?

  72. I wish to show my love for your kind-heartedness supporting those individuals that absolutely need assistance with this particular subject. Your personal commitment to passing the message up and down had been remarkably good and have in every case empowered others just like me to attain their pursuits. The important information means much a person like me and even more to my mates. Thanks a lot; from each one of us.

  73. certainly like your web-site however you have to check the spelling on several of your posts. Several of them are rife with spelling problems and I find it very bothersome to tell the reality on the other hand I’ll certainly come back again.

  75. I was very pleased to search out this internet-site.I wanted to thanks to your time for this excellent learn!! I undoubtedly enjoying each little little bit of it and I have you bookmarked to check out new stuff you blog post.

  77. In the great scheme of things you actually get an A+ with regard to effort. Exactly where you actually lost everybody was first on the facts. As it is said, details make or break the argument.. And that couldn’t be much more correct in this article. Having said that, permit me reveal to you just what exactly did deliver the results. The article (parts of it) is certainly extremely engaging which is probably why I am taking the effort in order to opine. I do not make it a regular habit of doing that. 2nd, even though I can see a jumps in reasoning you make, I am not really confident of how you seem to unite the ideas which inturn help to make the actual conclusion. For now I will, no doubt yield to your issue however trust in the foreseeable future you connect your dots better.

  78. Hello there! I know this is kinda off topic however , I’d figured I’d ask. Would you be interested in trading links or maybe guest writing a blog post or vice-versa? My site covers a lot of the same subjects as yours and I feel we could greatly benefit from each other. If you happen to be interested feel free to shoot me an e-mail. I look forward to hearing from you! Fantastic blog by the way!

  79. Hey there! Do you know if they make any plugins to assist with Search Engine Optimization? I’m trying to get my blog to rank for some targeted keywords but I’m not seeing very good gains. If you know of any please share. Thank you!

  80. My brother suggested I might like this website. He was entirely right. This post truly made my day. You cann’t imagine just how much time I had spent for this info! Thanks!

  81. Hey very cool website!! Man .. Beautiful .. Amazing .. I will bookmark your blog and take the feeds also…I am happy to find a lot of useful information here in the post, we need develop more techniques in this regard, thanks for sharing. . . . . .

  82. Good – I should definitely pronounce, impressed with your site. I had no trouble navigating through all tabs as well as related information ended up being truly simple to do to access. I recently found what I hoped for before you know it in the least. Quite unusual. Is likely to appreciate it for those who add forums or anything, website theme . a tones way for your customer to communicate. Excellent task..

  83. I haven?¦t checked in here for some time as I thought it was getting boring, but the last few posts are great quality so I guess I will add you back to my everyday bloglist. You deserve it my friend 🙂

  85. With havin so much content and articles do you ever run into any issues of plagorism or copyright violation? My website has a lot of unique content I’ve either created myself or outsourced but it appears a lot of it is popping it up all over the internet without my permission. Do you know any solutions to help stop content from being ripped off? I’d really appreciate it.

  90. Good – I should certainly pronounce, impressed with your site. I had no trouble navigating through all tabs and related info ended up being truly simple to do to access. I recently found what I hoped for before you know it in the least. Reasonably unusual. Is likely to appreciate it for those who add forums or something, web site theme . a tones way for your customer to communicate. Nice task..

  91. I’m really enjoying the theme/design of your website. Do you ever run into any web browser compatibility problems? A handful of my blog visitors have complained about my blog not working correctly in Explorer but looks great in Chrome. Do you have any suggestions to help fix this issue?

  92. It is appropriate time to make some plans for the future and it is time to be happy. I’ve read this post and if I could I desire to suggest you some interesting things or tips. Maybe you can write next articles referring to this article. I want to read more things about it!

  94. Awesome blog you have here but I was wondering if you knew of any message boards that cover the same topics discussed here? I’d really like to be a part of online community where I can get comments from other knowledgeable people that share the same interest. If you have any recommendations, please let me know. Thanks!

  96. I’ve been absent for a while, but now I remember why I used to love this website. Thanks, I will try and check back more often. How frequently you update your web site?

  99. Hi there, You’ve performed a fantastic job. I will certainly digg it and in my opinion suggest to my friends. I am sure they will be benefited from this website.

  100. I have read several good stuff here. Definitely worth bookmarking for revisiting. I wonder how much effort you put to create such a wonderful informative web site.

  103. Hi, i think that i saw you visited my blog so i came to “return the favor”.I am trying to find things to improve my site!I suppose its ok to use a few of your ideas!!

  105. I was just seeking this info for some time. After six hours of continuous Googleing, finally I got it in your web site. I wonder what’s the lack of Google strategy that don’t rank this type of informative websites in top of the list. Normally the top web sites are full of garbage.

  106. Aw, this was a really nice post. In idea I would like to put in writing like this additionally – taking time and precise effort to make a very good article… however what can I say… I procrastinate alot and on no account seem to get something done.

  108. I have been exploring for a little bit for any high-quality articles or weblog posts on this sort of area . Exploring in Yahoo I ultimately stumbled upon this web site. Studying this information So i am glad to convey that I’ve an incredibly excellent uncanny feeling I discovered exactly what I needed. I so much without a doubt will make certain to don’t forget this web site and provides it a glance regularly.

  109. Hi, i think that i saw you visited my weblog so i came to “return the favor”.I’m attempting to find things to improve my web site!I suppose its ok to use some of your ideas!!

  111. What i do not understood is actually how you are not actually much more well-liked than you may be right now. You are very intelligent. You realize thus considerably relating to this subject, made me personally consider it from so many varied angles. Its like men and women aren’t fascinated unless it is one thing to accomplish with Lady gaga! Your own stuffs nice. Always maintain it up!

  115. Can I just say what a relief to find someone who actually knows what theyre talking about on the internet. You definitely know how to bring an issue to light and make it important. More people need to read this and understand this side of the story. I cant believe youre not more popular because you definitely have the gift.

  116. We’re a bunch of volunteers and opening a brand new scheme in our community. Your web site provided us with helpful information to work on. You’ve done a formidable process and our whole neighborhood will likely be thankful to you.

  117. What i do not understood is in reality how you are not really a lot more smartly-favored than you may be now. You’re so intelligent. You know therefore considerably relating to this subject, produced me for my part consider it from numerous varied angles. Its like men and women are not interested until it is one thing to accomplish with Girl gaga! Your personal stuffs nice. Always care for it up!

  118. Hi , I do believe this is an excellent blog. I stumbled upon it on Yahoo , i will come back once again. Money and freedom is the best way to change, may you be rich and help other people.

  119. There are definitely quite a lot of particulars like that to take into consideration. That could be a great point to deliver up. I supply the thoughts above as normal inspiration however clearly there are questions just like the one you deliver up the place the most important thing will likely be working in honest good faith. I don?t know if finest practices have emerged around issues like that, but I’m sure that your job is clearly identified as a good game. Each boys and girls really feel the influence of only a second’s pleasure, for the remainder of their lives.

  131. Can I simply say what a relief to search out someone who really knows what theyre speaking about on the internet. You positively know find out how to convey a problem to light and make it important. Extra individuals have to read this and understand this facet of the story. I cant consider youre not more popular because you undoubtedly have the gift.

Leave a Reply

Your email address will not be published. Required fields are marked *