Paying Yourself: Salaries vs. Dividends – Part One

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Paying Yourself Salaries vs. Dividends Part One
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• The Pros and Cons of Salaries
• Todays 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?
• Youve started your own business and youre
  finally starting to make some money your
  suppliers and staff are being paid, as well as
  your bills, which means its 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 youll earn working
  for yourself? Not really but there is a
  difference in how you collect that money. Today
  were talking about the pros and cons of taking a
  salary as a small business owner.

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• 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 simplicitys sake) such as bi-weekly,
  monthly or perhaps quarterly.
• When it comes to writing the cheque, whats
  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,
  its a lot easier to control and monitor how much
  youre spending and how often youre taking money
  out, as opposed to those who take money out of
  their business ad hoc.

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• In the short-term, taking a salary will mean you
  will pay a slightly higher tax rate. Youll 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 youre late, 20 the
  second time youre 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.

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• 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!

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• 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? Its 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 cant
  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 youve reported your
  total salary to the CRA, theres almost no
  flexibility in changing how much you earned for
  any given year, and that lack of flexibility can
  be challenging for some

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• We strongly encourage you to discuss your
  remuneration with a qualified small business
  accountant. Want to talk to us about it?
  Contact us here.
• Kent Accounting is a full service accounting firm
  located in Calgary, Alberta. The firm is lead by
  Kent Greaves, a Chartered Professional Accountant
  in Calgary with over 18 years of experience
  working with privately owned companies. Our small
  business accountants in Calgary believe in
  prompt, accurate service at affordable rates.
  Running a small business can be the most exciting
  endeavor and the greatest challenge a person can
  undertake were here to help you succeed.