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How should I pay myself this year?

If you are an active business owner and your corporation’s year end is on December 31st, then you are most likely getting ready to do your tax planning for this year to minimize the tax that you may have to pay.

Here are some of the advantages and disadvantages to compensate salary for the business owners.

Tip 2 “Salary”

  • Salary is a deduction before paying corporate taxes, therefore it reduces the corporation’s income and profit at the end of year. However you need to pay tax on your personal tax return, also depending on which bracket you are.
  • To be qualified for “Canada Employment Amount” on Federal and Provincial personal tax return
  • If you’re willing to increase your Registered Retirement Savings Plan (RRSP) room then salary is good for you
  • Contribute to the Canada Pension Plan (CPP) or Registered pension Plan Past(RPP)

 

The big disadvantages of salary are that you have to pay 100% tax, deductions such as CPP  and in addition to that you will need to set up a payroll program account so you have to remit your deductions to the CRA.

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