How Should I Pay Myself?

Clients usually come to us wanting guidance on how to pay themselves. It is an important piece of the puzzle because the method of remunerating yourself affects not only your cashflow today and after retirement, but it also can change our game plan on how you can save for retirement.

There is a large body of financial experts that will argue that paying one’s self solely dividends will provide the business owner with the best tax savings and with the right strategy a greater retirement plan. However, if you do not pay yourself a salary, you cannot invest in RRSPs and you do not pay towards your Canadian Pension Plan (CPP).

CRA call center agents receive calls from distressed taxpayers that were under the impression that CPP was every citizen’s right and had not understood that not earning a salary meant that you were not contributing to your CPP. It can be a harsh discovery at 65 when your retirement plan included your dependence on your CPP.
Conventional wisdom dictates that owners of a corporation that has annual taxable income of less than $500,000 you should pay yourself enough salary to maximize your RRSP and CPP contributions and pay yourself and pay dividends to yourself and your spouse for additional tax savings through tax splitting.

Still unsure of what to do? Contact us, we would love to discuss your options with you.