How to Pay Yourself a Dividend from Your Corporation

How do I declare a dividend when I am the only shareholder and director?

As the sole director, you can approve a dividend through a signed written resolution. A personal transfer alone is not a dividend: the company must have the right to pay it and record the decision. Under federal corporate law, a written resolution signed by every director entitled to vote has the same effect as a meeting decision.

Check the articles and share register. Shares of the same class carry the same rights; a dividend on that class generally goes to every holder in proportion to their shares. Other classes may have different rights (federal rule; B.C. rule).

What goes in the dividend resolution, and where do I keep it?

Include the company name, decision date, share class, amount per share or total amount, recipients, payment date, dividend type, and signature. Keep the share calculation and financial check with the resolution. If it is an eligible dividend, designate it before or when paid and notify shareholders in writing; when every shareholder is a director, CRA accepts a notation in the minutes.

Keep the resolution with corporate records and payment proof with accounting records. Federal corporations must maintain directors' resolutions and accounting records (section 20); B.C. companies keep directors' consent resolutions at their records office. The resolution is not sent to the CRA.

What must be true before the corporation can pay?

The corporation must pass its incorporating statute's dividend test at declaration and payment. Bank balance alone does not prove solvency; check debts due, other liabilities, assets, and share rights.

Other provinces have their own tests. Check your incorporation documents; articles or a loan covenant may add restrictions.

Ontario has a narrow wasting-assets exception for qualifying corporations, requiring a shareholder special resolution. If a dividend breaks the applicable test, directors who approved it may personally have to restore the payment to the corporation (federal section 118, B.C. section 154, Ontario section 130, Quebec section 156). Statutory defences may apply. Federal and B.C. proceedings under these provisions must begin within 2 years of the resolution.

Can I pay myself dividends monthly like a paycheque?

Yes, if share rights and finances support each payment. Document each declaration, transfer, and solvency check; a standing transfer instruction does not replace the directors' decision. One T5 can report the year's total for the recipient (CRA T5 instructions).

With the same annual total, dividend type, recipient, and calendar year, monthly and single payments generally produce the same dividend income. Cash timing and paperwork differ. See Salary or dividends for the pay choice.

How do I record the dividend in the books?

Record a declared dividend as a distribution, not as a wage or business expense (Finance Canada). At declaration, reduce retained earnings or the appropriate equity account and credit dividends payable. At payment, debit dividends payable and credit bank. If declaration and payment coincide, record equity to bank directly.

Reconcile the resolution, bank transfer, shareholder balance, and T5. If declaration and payment cross year-end, see Dividend before or after year-end. Reconcile earlier withdrawals before classifying them; see Shareholder loans. Do not backdate a resolution.

How do I issue my own T5, and when is it due?

Your corporation is the T5 payer even when you own it. For taxable dividends paid or credited to a Canadian resident, total the calendar year's payments to that recipient and prepare a T5 slip. CRA says a slip is not required when all reportable amounts paid to one recipient total less than $50 for the year (CRA: when to prepare a T5); the income still belongs on the recipient's return.

Normally, file the T5 and give the recipient copy by the last day of February after the calendar year; a weekend or recognized holiday moves the filing deadline to the next business day. If the business or activity ends, send the slips to CRA and recipients within 30 days. If a T5 was missed, see Penalties, interest and relief.

Can a new corporation pay a dividend before its first T2?

Yes, if the corporation has issued dividend-bearing shares, properly declares the dividend, and passes its applicable payment test. The federal and B.C. provisions set financial tests, not a first-return waiting period. A new company may have little room under the federal asset test, so calculate it rather than assuming its cash balance is available.

If money was already moved to the owner without a dividend decision, the later T2 does not itself turn that withdrawal into a dividend. Reconcile the shareholder account first; Shareholder loans explains the consequences.

What changes when the owner is in Quebec?

A corporation paying or crediting a dividend to an individual resident in Quebec generally files an RL-3 with Revenu Québec as well as the federal T5 when the year's investment income to that recipient reaches $50 (Revenu Québec: RL-3 threshold). The RL-3 has no summary and is due to Revenu Québec and the recipient by the last day of February after the calendar year (Revenu Québec: RL-3 rules). The recipient's Quebec residence triggers the slip; the corporation need not be incorporated in Quebec.

On the RL-3 form, use box A1 for eligible dividends or A2 for ordinary dividends, then complete the taxable amount and credit boxes.

For a Quebec-incorporated corporation, the provincial dividend test also applies. Its Business Corporations Act focuses on the ability to pay liabilities as they come due. A federally incorporated corporation based in Quebec still checks the federal corporate test.

Example

A one-person B.C. corporation pays once

Illustrative amounts in Canadian dollars. A sole shareholder-director checks the company's shares and solvency, signs a resolution declaring a C$30,000 dividend payable November 15, and transfers C$30,000 from the company account that day. The books debit retained earnings and credit bank for C$30,000. The corporation includes the dividend on the owner's T5 for that calendar year and normally files it by the last day of the following February.

Monthly payments versus one payment

Illustrative amounts in Canadian dollars. Twelve separate C$3,000 dividends total C$36,000. One C$36,000 dividend paid in the same calendar year to the same owner, with the same dividend type, generally produces the same dividend tax calculation. Twelve separate declarations need twelve decisions; both routes feed one annual T5. A single resolution can instead schedule payments of one dividend, subject to the payment-time solvency check.

A dividend before the first T2

Illustrative first-year case in Canadian dollars. A new corporation earns cash, checks its shares and statutory payment test, and declares a C$5,000 dividend before filing its first T2. Filing the T2 first is not a condition. If the owner had already taken C$5,000 without a declaration, reconcile the withdrawal before classifying it; see Shareholder loans.

Different for you?

• You already took cash without a declaration: trace the withdrawals and see Shareholder loans.
• You live outside Canada: dividends to a nonresident use different withholding and reporting rules; see Non-resident owners of a Canadian corporation.
• You need the tax rate or an amount to set aside: see Tax on dividends from your corporation.
• You are unsure whether a dividend can be designated eligible: see How corporations are taxed.
• You are deciding between wages and dividends: see Salary or dividends.
• The share rights, solvency calculation, or shareholder account is unclear: gather the articles, share register, current balance sheet, debts, bank transfers, and prior resolutions for bookkeeping help.