If you have a company and it’s just yourself, with no employees yet – you need to decide whether you want to pay yourself dividends or salary.
Salary
On a salary, you pay payroll taxes & CPP each month. These payroll remittances are due before the 15th of the following month that the payroll was issued. It’s really important to pay the CRA each month, otherwise you can get hit with some hefty penalties. If you choose a set monthly salary, you can set up auto payments to the CRA from your bank account.
If the amount you pay yourself is going to change month to month, you’ll need to calculate how much CPP, and payroll taxes to remit to the CRA. The CRA has a great tool for this here. Keep in mind, shareholders and their immediate family do not pay into EI. When you have employees, it’s beneficial to use a payroll software. It will do the heavy lifting like calculating payroll deductions and remitting these to the CRA each pay period.
Dividends
Dividends are simply a sum of money that you would transfer to yourself each month from your company bank account. It gets posted to your shareholder loan, and then your bookkeeper or accountant will file a T5 tax slip and you’ll pay personal taxes on these dividends.
Depending on the amount of required income, dividends vs. salary is usually just a personal preference. If you’re unsure which would fit you best, contact your accountant for guidance. You can also check out this video to learn more about the difference between salaries and dividends.
Credits & deductions, what's the difference? Deductions and credits are both ways to reduce your taxes, but they work differently.