One of the most common questions small business owners ask is: “How do I pay myself?” The answer depends on whether you’re a sole proprietor or you’ve incorporated. Getting it wrong can create tax headaches and messy books.

What Is an Owner’s Draw?

• Common for sole proprietors.
• Money you take out of the business for personal use.
• It isn’t a business expense — it comes out of your equity.
• No payroll taxes are withheld at the time you take the draw (but you’ll pay personal income tax later).

What Is a Salary?

• Common for corporations.
• Paid like an employee, with payroll taxes withheld.
• Shows up as a business expense, reducing taxable corporate income.
• Provides consistent income, CPP contributions, and T4 slips at year-end.

How to Decide Which Fits You

• Sole proprietors → typically take draws, since there’s no legal separation between business and owner.
• Corporations → often choose salary, dividends, or a mix, depending on tax strategy.
• A professional bookkeeper or accountant can help optimize your approach.

Common Mistakes

• Recording draws as expenses (they’re not).
• Forgetting that taxes still need to be paid on draw amounts.
• Switching to a corporation and continuing to treat payments as draws.

The Bottom Line

How you pay yourself affects your taxes, your records, and even how lenders view your income. Understanding the difference between a draw and a salary will save you confusion — and keep your books accurate.

✅ Pro Tip: If you’ve incorporated, consider taking a mix of salary and dividends. A balanced strategy can reduce taxes and increase flexibility.

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