I found some tidbits over the years about this topic.. But wanted to sum up my understanding & approach..
\nSo there are many methods to consider when thinking about how to get money out of your corporation:<\/p>\n
Salary
\nBonus
\nDividends
\nLoans
\nManagement Fees
\nReimbursements<\/p>\n
(amoung others that I haven’t looked into really.. like benefits such as employer RSP contributions, etc)<\/p>\n
Over the years, it seems the government has altered some rules as it found people squeezing money out without paying enough tax.. Ie. From what I’ve heard, bonuses used to be much better to use, but now they don’t really differ from salary much (ie. they used to be used to reduce corporate income amounts to the small business limit..but i think that has been stopped)<\/p>\n
Anyway, here are the points I’ve collected for each (no promises that they are accurate):<\/p>\n
Salary:
\n– have to send source deductions each month or quarter (ie. cpp, taxes. EI as well if you don’t own > 40% of your corp)
\n– taxed at a lower rate then dividends?
\n– corp has to pay equal amount of CPP as well
\n– raises your RRSP limit<\/p>\n
Bonus:
\n– still needs deductions like salary
\n– I didn’t get a clear picture of other implications and complexities around reporting the amounts<\/p>\n
Dividend:
\n– can generate tax refund for corporation against investment income
\n– must record declarations in corp minutes
\n– T5 slips needed for taxes
\n– does not contribute to your RRSP limit
\n– does not help for childcare expenses (not sure how this plays in)
\n– 40k$ worth can be tax-free, if you actually had no other income<\/p>\n
Loan:
\n– no tax credit \/ deduction for corporation
\n– does not contribute to your RRSP limit
\n– not considered income for future personal financing \/ credit reviews
\n– a minimum interest rate must be charged, else it must be declared as a taxable benefit
\n– contract must be written
\n– interest payment is deductable
\n– I have read once that if a loan is not paid off over a year, it can be considered income by the tax-man
\n– Also read a strategy where loans are taken out all year, at the end of the year a bonus is paid out to pay it off (so you actually don’t get paid by that bonus since it went to the loans, you just get the remittance info ie. taxes deducted, etc). So another way to just postpone the taxes.<\/p>\n
Management Fees:
\n– avoids source deductions (like cpp, taxes)
\n– still taxed as income come tax time (so just delayed compared to salary\/bonus)
\n– HST must be charged after $30k in fees<\/p>\n
Reimbursements (expense reports basically):
\n– must match actual expenses<\/p>\n
SO far, I use a basic salary and quarterly dividends. So lastly, since I pay myself dividends through the year, I then put a bunch of the last dividend into my RRSP, to counter the amount of taxes I’ll be expected to pay on the income from the rest of the dividends.<\/p>\n","protected":false},"excerpt":{"rendered":" I found some tidbits over the years about this topic.. But wanted to sum up my understanding & approach.. So there are many methods to consider when thinking about how to get money out of your corporation: Salary Bonus Dividends … Continue reading
\nI use salary because I want my RRSP limit to increase, as well as max out my CPP contributions.. and dividends to help the corp tax a bit.
\nIt seems RRSP limits max out way beyond the CPP limit, so I use the CPP limit to decide how much salary I get.
\nFor instance, RRSP limit is based on 18% of earned income, so to reach the max RRSP (ie. $22970 in 2012), you’d need income of nearly $130k. So this means I am missing out on contribution room being added.. And I’ll soon start maxing out.. SO I plan to start keeping an eye on this, and possibly paying myself more just to get more contribution room..<\/strong>
\nEvery year, the CRA announces the maximum pensionable earnings. I use that as my salary, and use the PDOC (payroll deductions online calculator) to sort out the source deductions (CPP, fed tax, prov tax).
\nThis is all set by the government.. So i can lay it out here (I’m surprised this isn’t more commonly found on the net… ie. the minimum salary to maximize CPP and RRSP)
\nFor instance, in 2013, the CRA set the MPE at $51,100. This means a monthly pay of $4258.33
\nThe CRA also set the maximum CPP contribution for a person to be $2356.20 (note the employer matches this as well).
\nSo since I want the max CPP when I retire, I make sure I reach that maximum contribution.
\nThe PDOC helps calc it all, so that with the monthly pay, i should deduct $202.12 for CPP, $522.41 for Fed taxes, and $262.31 for prov taxes. (this of course pays enough taxes to cover salary – but nothing else such as the dividends I pay myself)
\nThis is the base salary and source deductions I used. And it’s how I have always done it.. I’m surprised this amount isn’t very common out there as well known amounts (again, like the yearly “minimum salary to maximize CPP and RRSP”).
\nmaybe i’ll start that up on this blog \ud83d\ude09<\/p>\n