Plan your owner pay before year-end, not after

For owners of a corporation, how you pay yourself is one of the biggest planning decisions of the year. It's also one of the easiest to leave too late. Once the year has closed, most of the options have closed with it.

Salary or dividends

A salary is a deductible expense for the corporation. It creates RRSP contribution room and requires CPP contributions and payroll remittances. Dividends are paid from after-tax corporate income, with no CPP and no RRSP room. Neither is always better. The right mix depends on your personal income needs, retirement plans, other income and the corporation's profit.

Questions to answer before year-end

How much do you need personally this year, and next? Do you want RRSP room, or are you building savings inside the corporation instead? Are other family members involved in the business? Is the company planning a large purchase that will need its cash?

Why timing matters

Salary and bonuses have payroll deadlines and must be properly declared. Dividends need corporate resolutions. Decided early, owner pay becomes part of a plan. Decided late, it becomes whatever the bank balance allows.

A short planning conversation a couple of months before year-end is usually enough to get it right.

This note is general information, not advice for your situation. Let's talk about yours.