What’s the best way to pay yourself: Salary, Dividends, or Bonuses?


Issue 9 – January 2012

Happy 2012, and welcome to a new year.

As a business owner, you have options in how your business pays you. It’s in your best interest to schedule time and structure a renumeration package that best meets your needs and takes advantage of deferring taxes where possible.

The guidelines below provide a brief overview of what’s possible. For help you with structuring your renumeration package give us a call.

Donna Mazerolle
www.DonnaMazerolle.com

Some general guidelines to follow in remunerating the owner of a Canadian-controlled private corporation earning “active business income” include:

  1. Bonusing down active business earnings in excess of the annual business limit may reduce the overall tax. However, leaving corporate active business income over this amount presents a tax deferral. Professional advice is needed in this area.

 

  • Notification must be made to the shareholders when an “eligible” dividend is paid – usually in the form of a letter dated on the date of the dividend declaration. If all shareholders are directors, the notification may be made in the Directors’ Minutes. Please contact your professional advisor for advice before paying an eligible or ineligible dividend.

 

 

  • Elect to pay out tax-free “capital dividend account” dividends.

 

 

  • Consider paying dividends to obtain a refund of “refundable dividend tax on hand”.

 

 

  • Corporate earnings in excess of personal requirements could be left in the company to obtain a tax deferral. The effect on the “Qualified Small Business Corporation” status should be reviewed before selling the shares.

 

 

  • Dividend income, as opposed to salaries, will reduce an individual’s cumulative net investment loss balance thereby providing greater access to the capital gain exemption.

 

 

  • Excessive personal income affects receipts subject to clawbacks, such as old age security, the age credit, child tax benefits, and GST credits.

 

 

  • Salary payments require source deductions to be remitted to the Canada Revenue Agency on a timely basis.

 

 

  • Individuals that wish to contribute to the Canada Pension Plan or a Registered Retirement Savings Plan may require a salary to create “earned income”.

 

 

  • Salaries paid to family members must be reasonable.

 

 

We specialize in helping business owners just like yourself, with business strategy, business plans, accounting and bookkeeping services, sourcing funds, growth management and turnaround strategies. Call Donna Mazerolle at 506-657-4067 or 1-800-650-4067 to learn how we can help make 2012 your best year yet.