How Should You Pay Yourself from Your Corporation?

Let’s say you’ve got $6,000 sitting in your business savings account —  Now what? How do you actually pay yourself in a way that’s tax-efficient and CRA-compliant?

If you’re running a small incorporated business, this is one of the most important things to get right. Below, we’ll walk through your main options and what they mean for both your books and your taxes.

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A dividend is a payment made to you as a shareholder, usually from retained earnings. It’s the simplest way to take money out of your corporation without triggering payroll obligations.

How it works:
You transfer money from your business account to your personal account and record it in your books as a dividend. This doesn’t count as a business expense, and you’ll pay personal income tax on the dividend amount when you file your return.

Why choose dividends:

• No CPP or payroll remittances
• Simple to execute
• You get a dividend tax credit, which can lower the tax you owe

What to keep in mind:

• You’ll want to document the dividend with a director’s resolution (even if informal)
• Dividends don’t generate RRSP contribution room or contribute to CPP
• You may owe taxes later if you don’t set anything aside

2. Put Yourself on Payroll

Paying yourself a salary means treating yourself like an employee. This adds some complexity, but it comes with advantages like contributing to the Canada Pension Plan (CPP) and increasing your RRSP contribution room.

How it works:
You register a payroll account with the CRA, withhold taxes and CPP from your own pay, and remit those amounts monthly. You’ll issue yourself a T4 at the end of the year.

Why choose payroll:

• You contribute to CPP
• You create RRSP room
• Personal taxes are smoothed out since they’re deducted at source

What to keep in mind:

• You must stay on top of payroll remittances
• The corporation must match your CPP contributions
• There’s more admin and compliance involved

3. Repay a Shareholder Loan (if applicable)

If you loaned money to the corporation when it started, you can pay yourself back without tax consequences. This is not considered income.

How it works:
You transfer the funds from your business account to your personal account and record it as a repayment of a shareholder loan. That’s it.

Why choose this:

• Tax-free
• No reporting to CRA as income
• Reduces the corporation’s liability to you

What to keep in mind:

• Only applies if you previously funded the business from personal savings
• You must have proper records showing the loan

So What’s the Best Option?

For most small, owner-operated corporations, the best answer is often a mix.

You might pay yourself a dividend during the year for simplicity, then do a small payroll run at year-end to generate some CPP and RRSP room. This gives you the flexibility of dividends with some of the long-term benefits of salary.

If you’re just looking to take money out now and haven’t set up payroll, a dividend or shareholder draw is a clean way to do it — just make sure your bookkeeping reflects it accurately.

QuickBooks Tip:
If you’re taking a dividend, record it as a transfer from your business bank account to your personal one and categorize it under a “Dividends Paid” or “Shareholder Draws” account. If it’s salary, you’ll use a payroll journal entry or app integration instead.

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