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One of the decisions you have to make when you start your business is how do you pay yourself. There are three basic options, each with their advantages and disadvantages.
To pay yourself a salary as a business owner, you must first set up a payroll account with the Canada Revenue Agency (CRA). This is a simple process where you can contact the CRA business line and they can set up the account. When you pay a salary from your corporation, it will be a deduction that will reduce your corporate net income, however, you will be taxed on the salary you receive on your personal tax return.The payroll process, including how much to deduct, when to deduct and where to remit can be simplified by outsourcing this function to a payroll service provider.
Salary vs. Dividend
In order to pay a dividend, you must set up a Return Program Account (RZ) account with CRA. Dividends are paid out to the shareholders of a corporation in proportion to each shareholders’ ownership in the corporation. When you pay a dividend, you are required to issue a T5 slip which is subsequently included in the recipient's personal tax return.
These entrepreneur tips will help you understand the best way to pay yourself. However, in monetary matters involving tax implications, it is best to get professional consultancy. Get accurate accounting assistance by contacting ATS Accounting.