Issuing Salary vs. Dividends

Here are some tips on issuing salary vs. dividends:

Benefits of choosing Salary:
1. Can use towards RRSP contributions, and defer percentage of tax on income. For 2019 we can transfer max. of 1. $26500 or 18% of eligible income.
2. Wages allow us to contribute at CPP (will increase the cost for employee and employer both).
3. If planning to acquire a loan for property/investments, many financial organizations want to see steady and regular predictable income.

Benefits of choosing Dividends:
1. Lower cost: In absence of salary expenses, no need to pay any contribution toward CPP and EI (however dividend is not deductible as a business expense).
2. Save payroll expenses: Paying dividend will save the payroll cost by declaring dividend 100%. If you choose this option, then no need to register for payroll and remit source deductions.
3. Shareholders will receive a dividend tax credit.

It is always difficult to decide which option is better and why. As an accounting firm we always help our client to do tax planning, so they have more money in their hand during the year end.

For more help on tax planning compensation, feel free to reach out to IDM Professional Corporation CPA.