Salary vs Dividends - Take 15 Minutes and Learn to Pay Less Tax 🍁

Salary or Dividends - which is better? We look at the difference between paying yourself a salary or paying yourself dividends.
We discuss the main advantages and disadvantages of each and look at some common scenarios for when a business owner may choose one method over the other.
Questions answered in this video include:
► What's the difference between paying yourself a salary vs paying dividends?
► Why would a salary be better than dividends?
► When are dividends better than salary?
► How to pay yourself a salary
► How to pay yourself dividends
► Will I pay less taxes using salary or dividends?
► How to compare taxes owing from salary and dividends
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🎥 CONTENTS OF THIS VIDEO
00:00 - Intro
00:31 - Paying Yourself a Salary
00:55 - How Paying Yourself a Salary Works
01:17 - Why Choose Salary
01:26 - Salary Builds RRSP Contribution Room
01:49 - Salary Helps Avoid Surprise Tax Bills
02:34 - You Contribute to CPP with Salary
03:18 - Salary Helps Qualify for a Mortgage
03:38 - Salary Can Help Qualify for Subsidies and Tax Credits
04:15 - How to Pay Yourself a Salary
05:04 - Paying Yourself Dividends
05:13 - How Dividends Work
05:44 - Why Choose Dividends
05:50 - Dividends Remove CPP Costs
06:31 - Paying Dividends is Simple
06:57 - Dividends Reduce Chances of CRA Penalties
07:30 - Dividends Can Decrease Employer Health Tax Costs
08:07 - How to Pay Yourself Dividends
09:17 - Salary vs Dividends - How They're Taxed
10:11 - Salary vs Dividends - Which Creates Less Tax?
10:50 - Salary vs Dividends - Tax Comparisons
11:14 - Salary vs Dividends - Tax Comparison Example 1
12:26 - Salary vs Dividends - Tax Comparison Example 2
13:46 - Salary vs Dividends - Summary of Factors to Consider
14:14 - Final Thoughts🥣😆
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🔗 MENTIONED IN THIS VIDEO
► Salary vs Dividends Blog Article
www.avalonaccounting.ca/blog/...
► How to Run Payroll in Canada: a Step-by-step Guide
www.avalonaccounting.ca/blog/...
► How Employer Health Tax Works
www.avalonaccounting.ca/blog/...
► Corporate Share Structure Considerations for Canadian Businesses
www.avalonaccounting.ca/blog/...
► Tax on Split Income (TOSI) Tax Changes 2018
www.avalonaccounting.ca/blog/...
► Wealthsimple Tax Calculator
www.wealthsimple.com/en-ca/to...
► Corporate Tax Rates in Canada
www.avalonaccounting.ca/blog/...
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[@serguti]

Best video ever explaning the questions that I have around the topic.

[@DaveyDoodle]

This video is gold! Thanks for explaining all this. So helpful!

[@mamabear3616]

Such a great video . Thank you so much !!!

[@luluweder]

thanks for the amazing video and info !

[@gglettner]

Great video, Joe. Informative and to the point. It was exactly what I was looking for in making a decision between salary and dividends for the company that I co-own with my wife. Thank you!

[@AvalonAccounting]

Awesome, glad it was helpful!

[@mouhamadoulaminebasse9]

AMAZING Content ! Haven't started yet but having all the resources needed and the breakdown/layout of the information is awesome. Helps you dig progressively into the subject and gain more knowledge. If you could have more contents for early entrepreneur starter on business, Mistakes to avoid, etc. this would be much appreciated. Again kudos and looking forward to your next videos.

[@AvalonAccounting]

Thanks so much! We are working on a Starting Your Business course, but in the meantime you can head over to our website and download our free guide on starting your business. More to come!

[@mmbaseball2875]

I just started a corporation in Ontario and this video was great! For me personally, I know that I generally spend the around the same amount each month so the salary option is the way to go

[@AvalonAccounting]

Cool! Thanks for watching and glad you've got a good idea of how to pay yourself :)

[@tanushreeholker67]

Very well explained 👍🏼

[@RazaDatoo7292]

Great series. Quick question if I wanted to add additional employees, is there a straight forward method to add new tabs?

[@Robot_Overlord]

Another great video. Bravo

[@AvalonAccounting]

Thanks Andy! Glad you enjoyed it!

[@VirajRao]

Joe, thanks for sharing this information.

[@AvalonAccounting]

You bet! Thanks for your support.

[@VirajRao]

@@AvalonAccounting The information shared by you helps small business owner like myself.

[@TheGreatAgnostic]

One way that comparison might not be apples to apples is that the lack of CPP contributions ought to be offset with a commensurate amount of low risk investing like in a bond fun or something more aggressive to offset future benefits not being received.

[@codybryan4361]

What about the differences of paying a dividend out of your holding company or splitting salary and dividends throughout the year?

[@brco2003]

Great video. Isn't the employer portion of CPP tax-deductible to the corporation?

[@matthouse6921]

Great content

[@AvalonAccounting]

Thanks Matt! Appreciate the feedback :)

[@ericpinto9832]

This is the best video that exists on youtube

[@AvalonAccounting]

And this is the best comment on the best video :). Thanks so much!

[@kallymin9776]

Can you pay yourself a blend of dividends and salary so that you can take advantage of tax credits and then fill the rest in with dividends? To get yourself in the most advantageous position?

[@AvalonAccounting]

Yes, that's ideal!

[@joro3488]

I was going to ask this question also😂 I always thought it was either salary and bonus or just dividends, the taxes off salary and bonus is too much, I would rather pay myself a monthly salary and a semi annually divided if that is possible 🤔

[@aqibpatel529]

Thank you for clear explanation! One thing that I failed to understand is that you counted CPP contribution as a cost to corporation, but technically it's money you are eventually going to get back. If you minus CPP contributions as a cost with salary, paying dividends doesn't make sense at all. Let me know if I missed something.

[@AvalonAccounting]

Hey Aquib - there are actually two parts to CPP contributions, an employee portion and an employer portion. You may receive a pension from Canada Pension when you retire, but that is typically quite a way into the future and the amount may not be known.

[@oneuphouses]

Is there any restriction on the amount I can withdraw as Dividend from my company?

[@peterrusich8387]

As the sole director and shareholder of my corporation (for now), I cannot pay myself a salary according to the rules. I believe that is correct?

[@billb5542]

Hey Joe, I am a big fan of your channel. Quick question, could a third option to pay yourself as a contractor (sole proprietor outside of the corporation)? Or to your spouse or family member as a contractor (sole proprietor outside of the corporation)?

[@AvalonAccounting]

Hi Bill! Tax court has ruled on this and you can not be a contractor of your own corporation. For a spouse or family member, I am not 100% sure on that. We would generally make a spouse or family member an employee and pay them a reasonable wage for the work they do in the business.

[@kdpunshon3073]

Definitely not. CRA says No, No.

[@reaalmaadrid]

In your calculation, why did you take into consideration the tax savings for the corporation from paying yourself a salary but did NOT take into consideration that the dividend is after tax and should have been taxed at your corporate tax rate? Am I missing something?

[@aminvadsaria4120]

It was nice informative video. I would like to ask is it good option to take both salary and dividends. As we can take lower salary for lower tax bracket. for example for an Ontario resident we can show 46k as salary and rest we can show it as dividends. As for 46K Ontarians only pay 5.05% and for federal we can pay 15%. Plus also is there something which has first 10K earned is tax free?

[@AvalonAccounting]

Hi Amin - you salary and dividend income gets added together to calculate your total income. This total income will determine what your marginal tax rate is. In other words, your salary and dividend income is not tax separately. Hope this helps!

[@gabeavelar]

Joe, You recommended a book on your of your videos. It was a book on how to structure pay in your business. Something about having open books with your team. Please tell me the name of the book. I can't remember and I can't find it. Thank you!

[@AvalonAccounting]

Yes! The Great Game of Business!

[@fuadahmed7322]

Quick questuon. When one pays themselves Dividends for example, would that amount be taxed according to the Tax bracket ? Meaning if i payed myself the lowest salary i can live off which is 40K, would that 40k be taxed in that tax bracket provincially and federally ? Another question. If I temporarily stop my business for a couple years and don't make any capital, do I still have to pay yearly corporation Tax ?

[@joro3488]

you only pay corporation tax when your business makes a profit, so if ur business is not functioning for a while you file nil every year and pay your corporate tax registration fee which is $12, maybe someone else can add to this comment or correct me

[@ysrfan2345]

Great information Joe, I am a salaried person and I started a contract through my incorporation as my 2nd job, what do you suggest in this case? I am already doing my cpp contribution from my 1st job, if I take salary from my incorporation which deduct cpp again, will I get my cpp back at the end? do you think dividends will help in saving more money? or paying my spouse a salary from my incorporation will help reduce the tax?

[@AvalonAccounting]

Great questions! First, you don't have to pay CPP twice, so you would get a refund for any overpaid CPP. In this case, I don't think there is going to be a big difference between salary and dividends, but there are two articles you should read before taking any other steps: 1. Personal Services Business: some special rules apply for single-contract corporations: www.avalonaccounting.ca/blog/personal-services-business 2. Tax on Split Income: If you spouse is truly working for the corp, that's great and salary can work in this case, but CRA doesn't like split income! www.avalonaccounting.ca/blog/tosi-and-dividends-to-spouse

[@ysrfan2345]

@@AvalonAccounting Thanks Joe.

[@FatCapFx]

Am i allowed to just personally invoice my Corp for services rendered? Then pay taxes on what i invoice when i file my personal income tax?

[@AvalonAccounting]

Generally speaking, this is not advisable as the courts have ruled on this type of relationship: check out this article for details: www.thebluntbeancounter.com/2015/05/can-shareholder-be-independent.html

[@FatCapFx]

@Avalon Accounting very informative. Thank you. Only recently took over a corp from a family member. will have to look into how to pay myself in dividends as it's only me being paid (corp invoices multiple clients for different services I perform) and I don't think getting into payroll makes sense for me this year.

[@FatCapFx]

@@AvalonAccounting I'm located in Prince Edward Island. I don't really need any specific provincial tax advice. do you guys have some sort of a program where I could call up and pay for a 30 or 60 minute phone based consultation with a credit card? Just to go over ins and outs of paying ones self with dividends, how that effects the lease cost write off process from your other video with the personal benefit thing, just some generic stuff like that?

[@jaydoe5654]

What if the corporation makes $100k and the salary is kept under $30k? What is the scenario for the LEAST amount of taxes?

[@TheRealSalesse]

First 15k will usually be tax-free because of the "Basic Personal Amount" tax credit that every Canadian gets to use. If you put the other 15k into an RRSP, you will not have any taxes owing until you take the money back out. You might be able to use your RRSP as a down payment for a first time homebuyer plan.

[@liordoron1]

How does the employer match the CPP? When does the employer pay this?

[@AvalonAccounting]

On every remittance- the employer withholds the employee portion and pays the employee and employer portion on their (usually monthly) payroll remittance. Hope this helps!

[@liordoron1]

Just seems the employee withholds a sum and simply gives it to the government?

[@settledinbanff]

Gently caressing the bell 🤣🤭🤦‍♂

[@omairraza9213]

Im only here for more Silicon Valley references

[@settledinbanff]

Brilliant.