SALARY vs DIVIDENDS: How to Pay Yourself from a Corporation (Canada) Pt 1 of 2

[@punnyabrata]

I just became a fan of this dude when he defined tax in such a simple way. Listening to educated people talk is so satisfying irrespective of their profession.

[@BreakingBadDebt]

Agreed! Good teachers know how to simplify complex concepts!

[@Birdieinthesky100]

One other major point that often gets gets missed in my opinion is that RRSP's and personal pension plans, in the event of bankruptcy RRSPs and RRIFs are generally protected against most creditors under the Bankruptcy and Insolvency Act (BIA). The only way to accumulate RRSP contribution room is to pay yourself a salary. There are a number of professions (Accountants, Doctors, Lawyers, Appraisers, Engineers) that can be subject to litigation and large judgements for various reasons. Assets that are located in RRSP's and Individual Pension Plan (IPP) are protected against judgments like this. This less known benefit is on top of the other tax deferred growth, and tax deductions that RRSP and IPP also provide.

[@BreakingBadDebt]

That's good to know! Thanks for the input!

[@BreakingBadDebt]

𝗧𝗼𝗽𝗶𝗰𝘀 𝗖𝗼𝘃𝗲𝗿𝗲𝗱: 0:00 - Intro 2:09 - Cashflow in a Corporation 5:05 - How to pay yourself Salary from your Corp 5:50 - Canada Pension Plan (CPP) 9:05 - Setting up Payroll with Revenue Canada 10:26 - Salary: Pros & Cons 18:21 - How to pay yourself Dividends from your Corp 20:12 - Dividends: Pros & Cons 22:47 - How to determine how much Salary or Dividend to pay? 25:35 - Capital Dividend Account (CDA) 25:57 - General Rate Income Pool (GRIP) 26:49 - Eligible vs Ineligible Dividends 29:15 - Optimal mix of Salary & Dividends 30:45 - Summary 𝗢𝘁𝗵𝗲𝗿 𝗥𝗲𝘀𝗼𝘂𝗿𝗰𝗲𝘀: 1) Should I Incorporate? Incorporation Explained: kzbin.info/www/bejne/oqjKhKWopZmSaLM 2) Efficient Investing in a Corp / RDTOH: kzbin.info/www/bejne/bZLCg2Z5oNqZeLc 3) Salary & Dividend Optimizer Calculator: www.looniedoctor.ca/canadian-financial-calculators/#tax 4) White Paper: Optimal Compensation, Saving and Consumption for Owners of Canadian Controlled Private Corporations (Braden Warwick & Ben Felix) www.pwlcapital.com/resources/optimal-compensation-saving-and-consumption-for-owners-of-canadian-controlled-private-corporations/

[@stevebridge4375]

Really great video Mark and Stephanie! Very clear and non-partisan look at the pros and cons of salary vs. dividends. I often see clients who are all about all dividends all the time from their corporation and talking them out of that can be a challenge. I may send them your video!

[@BreakingBadDebt]

Thanks Steve! Feel free to send to your clients if it helps them!

[@sararuiz2804]

Great videos! Immediately subscribed!

[@daphilta]

Great work Docs! Always love your posts.

[@BreakingBadDebt]

Thanks! Glad it was helpful!

[@maryk153]

Thank you so much! Amazing talk

[@BreakingBadDebt]

Glad you found it helpful!

[@mei3385]

Thanks both of you for the great informative talk! Just wanted to clarify the pros/cons of paying yourself a larger salary to max RRSP room if your typical spending needs are less than that (ie. 150k vs 80k)? Thanks!

[@BreakingBadDebt]

That's going to be our next video! How to calculate How Much salary / dividend to pay yourself? Generally, the RRSP is considered more tax efficient than the corporation, which is why some will maximize their RRSP room. The other reason why someone would take a higher salary is if you're saving up for a big purchase like a home. Instead of taking a big dividend out of the corp (less tax efficient), some folks will ramp up their salary in the years leading up to the purchase so that they would be taxed at a lower marginal tax rate.

[@tyz6069]

Thank you sooooo much for this amazing talk! I have a newbie question, can we accumulate the amount of RDTOH and eligible dividends (GRIP?) throughout the years or we need to use them before the end of each corp tax year otherwise they'd be erased? Thank you again

[@BreakingBadDebt]

Hey, great question- I’m going to direct you to this other video I did with Dr. Soth for more info. While the RDTOH doesn’t get erased, it can lead to something he calls “dividend trapping” which can be inefficient from a tax perspective bc you paid tax on the dividend but haven’t gotten a refund on it. kzbin.info/www/bejne/bZLCg2Z5oNqZeLc

[@MarkLapasa]

This was great. Would either of you have any recommendations for a GTA based accountant for my corporation? Thx

[@BreakingBadDebt]

Hi Mark, are you a physician? If you're part of the Physicians Financial Independence facebook group there are recommended accountants by your colleagues that you can check out. MD Financial also has a list of accountants who work with physicians regularly.

[@OnTheSpurOfTheMoment]

The loonie doctor site is horrible. Heaven knows how you can get to a calculator. It's just a site that earns money through ads. Click bait. #Beware

[@BreakingBadDebt]

I've used Mark's site myself and I see that the calculators are at the top of the homepage listed as "Calculators". He DIYs his blog himself (not through a web designer) so maybe that's why it doesn't have a sleek user interface. If there are any suggestions on how to make his site more user friendly, I'm sure you can reach him through the contact page on his blog.