One of the most complicated aspects of owning a business is paying a salary to your own self. This requires one to have an extraordinary amount of restraint. Canada Revenue Agency has created a set of regulations which are to be strictly followed when corporate officers, entrepreneurs, and business owners are looking to give back to themselves. These rules differ outrageously based on the structure of the corporate office or the type of business. Using dividends to pay your own self is a flexible manner to deal with this issue and this form used to compensate oneself is a profitable technique.
Why dividend as salary?
The first thing that one needs to understand is what dividend is in order to understand how to pay one’s own self using this amount. Dividend is the amount of money a company pays to its shareholders. This amount is generated from the profit made by the company after cutting off the amount incurred as corporation tax. The amount you pay yourself can be declared as the dividend since you have the right to make decisions. However, other individuals who are an important part of your organization like partners, investors and major shareholders along with the employees and creditors might want to be involved in making this decision.
Create a timetable
You need to set up some rules for yourself so that you can maintain discipline while paying yourself a salary. The most important thing that you need to keep in mind is that profit needs to be generated so that you receive a part of it. Only when the company has enough money left after tax deductions will you be able to pay using dividends.
Set a particular time for when you will collect your salary after all the important persons have agreed. You can either take it once in a year after the tax deductions, or twice, or bimonthly or monthly. The most common system followed by most of the entrepreneurs of Quebec is receiving a salary every six months.
The Canadian Tax system aims at maintaining a uniform pattern for earning income through salary and dividends. The rules for Quebec however, are very different from that of other provinces. So your decision to collect salary from dividends should be made after considering the tax deduction rules followed in Quebec. A tax accountant is the professional you should be looking to hire if you are unable to understand or make a decision which is beneficial to all.