Many business owners struggle over whether or not to pay themselves. As most of my clientele are small businesses, self employed, solopreneurs, this is a common question I get!
“Do I pay myself and If so – how should I do it?”
There are a couple of options on if you should do this and how to go about paying yourself. It all depends on what type of business you have and how it’s structured.
Though the correct decision for you comes down to personal circumstances, you should have an objective understanding of the advantages and disadvantages of each payment method.
As a Sole Proprietor or Partner –
your business income IS your personal income. My response is yes, pay yourself! You don’t have a salary or dividend option to choose from.
Nevertheless, it is actually a smart decision to pay yourself first as it creates an incentive to work harder while also ensuring increased savings for you or your business. On top of this, many investors and banks judge the decision of paying yourself first as a sound one, viewing proprietors as committed to their company.
If you have an Incorporation –
The owner of a corporation will have the option to pay themselves dividends or a salary, compared to a sole proprietor or partner who can only pay themselves a business salary.
You then have options…
Here are the Advantages of both options, understanding that tax implication differs between the two options.
Advantages of Salary | Advantages of Dividends |
Receive legal salary and a T4 | Avoid paying mandatory CPP and other contributions, therefore mor cash flow for the business |
CPP is accounted for and no need to save for it | Less chance of CRA payroll penalties |
Fewer surprise tax money | Simple payment process, no CRA involvement |
Easier to apply for loans because record of consistent income |
However your business is structured you can make sure you are paid correctly…….Book a call with me to discuss what would be your best solution.