Tax guides
Owner pay and payroll under Canadian federal and provincial rules.
Check share rights and solvency first. A sole director signs a resolution; the corporation records and pays the dividend, monthly if desired. It reports a Canadian-resident owner's taxable dividends on a T5 by the last day of February after the calendar year. For a Quebec resident, it also files an RL-3 when annual investment income reaches $50.
Corporations
Check when you actually receive the dividend: that calendar year sets your personal return and tax, not the declaration date. January receipt usually means next year's return, though instalments may be due sooner. Paying before the corporation's year-end may trigger its dividend refund. You can declare after year-end, but dividends never reduce corporate income.
Corporations
Classify each transfer before taking it: owner pay may be salary or a dividend; loan repayments and documented expense reimbursements are different. Salary runs through payroll, with tax and applicable CPP or QPP deducted. An ordinary dividend has no payroll withholding, so reserve for corporate tax and personal tax due April 30. Include pay from your old job in that estimate.
Corporations
Usually, but a federal ban can block a purchase by a company partly owned by non-Canadians. If you or family use the home for less than that use is worth, you generally have a taxable shareholder benefit the company cannot deduct. Comparable rent may be too low for a costly home, and the company's gain gets no principal residence exemption.
Corporations
There is no fixed tax-free dividend amount in Canada. The shareholder usually pays any personal tax, separate from the corporation's tax. Your zero-tax limit depends on dividend type, province, other income and family-shareholder rules. Even a dividend with no personal tax can reduce income-tested benefits.
Corporations · Individuals
Start with the after-tax cash you need, then test whether an extra payment fits a lower personal tax bracket. A Canadian-controlled private corporation pays tax on its taxable profit whether it retains or distributes the after-tax cash; you generally pay personal tax when it pays you a dividend. Keeping profit usually defers part of the tax rather than removing it.
Corporations
You can pay a spouse or child for necessary work and deduct reasonable wages if you document the work and payment. A corporation can also pay dividends to family members who own shares with dividend rights, but tax on split income may tax those dividends at the highest rate unless an exception applies. A sole proprietor cannot pay dividends.
Self-employed · Partnerships · Corporations
Check the notice and periods; reconcile pay, remittances and slips before correcting them or appealing. If a contractor was an employee, the employer may owe worker and employer CPP or QPP contributions, EI premiums and Quebec QPIP premiums, plus interest and penalties. Sole proprietors owe personally; general partners and corporate directors can also be personally liable.
Self-employed · Partnerships · Corporations
Whether self-employed, a partnership or a corporation, first sort payments by recipient residence, work location and payment period. Generally issue T4A for resident service fees above $500, including corporate fees; deducted tax also requires a slip. A mainly construction business uses T5018 for resident trades. Non-residents' Canadian work requires T4A-NR and usually withholding. Reconcile and file missed periods; the payer owes any penalty and unwithheld tax.
Self-employed · Partnerships · Corporations
If you pay an employee, open a CRA payroll account, collect their tax forms, and calculate income tax, pension contributions, and employment insurance on each payment. Add the employer contributions and remit the total by the deadline for your remitter type. Keep pay records, file T4 slips after year-end, and check separate provincial duties, especially in Quebec.
Self-employed · Partnerships · Corporations
Check CRA room and province of employment. Pay $196,612 by December 31 for maximum next-year RRSP room, subject to other income and RRSP adjustments. Outside Quebec, $85,000.00 maxes CPP and CPP2 for full-year pensionable work: employee and corporation each pay $4,646.45, making corporate cost salary plus its share. Quebec's QPP maximum is $4,895.30 each. Age or an election may lower it.
Corporations
A Canadian corporation can pay an owner salary, dividends, or both. Salary generally creates RRSP room and pensionable earnings but brings payroll obligations. Non-eligible dividends come from after-tax profit without payroll withholding, so a BC owner should set aside cash for tax and check any instalment reminder. Compare tax to decide how much to pay yourself.
Corporations
A genuine loan from a Canadian corporation to a shareholder or connected person is generally included in the borrower's income for the borrowing year unless an exception applies. Repayment within one year after the lender's tax year-end may qualify if it is not part of a borrowing cycle. Salary, bonus or dividends owed to the borrower can legally clear the debt.
Corporations
For a non-eligible dividend from your corporation, 115% of the cash enters taxable income. Federal tax is reduced by a credit of 9.0301% of that amount, plus a provincial credit. Eligible dividends use different rates. Your bill depends on other income and province. Because tax is normally not withheld, project the full-year bill and reserve the unpaid amount from your dividends.
Corporations · Individuals
Not sure which rules apply?