If your question is about saving taxes this year, based on how you pay yourself, the fact is it doesn’t make a huge difference in most provinces. difference. The tax system has been re-designed so that there is no tax savings. This has been the case for several years. HOWEVER, there is a significant difference over the long run. Most tax planners suggest their clients pay themselves a salary for RRSP contribution room and to fund their Quebec Pension Plan (QPP). This is so wrong in most cases.
First, business owners pay double the amount of money every year to fund the QPP (over $5,000 per year for business owners versus $2,500 for non business owners). Business owners under the age of 45 would be better off keeping the $5,000 in a holding company and investing it at a rate of 5% (very conservative rate and easily done). This would give you a pension that is significantly higher than what the QPP would give you at age 65.
Second, if you crunch the numbers, business owners would be better not buying RRSPs and instead, leaving the money in their holding company. They would be deferring taxes at the same rate as an RRSP since the tax rate for their business would be significantly lower than taking a salary. Most importantly however, When the money will be needed during retirement withdraws from a corporation will be taxed less than withdraws from an RRSP. Furthermore, they will have the choice of when to start taking money out their holding company for their retirement needs unlike RRSPs. If you have RRSPs the government forces you to start withdrawing at age 71 whether you need the money or not. And that RRSP income is TAXABLE as SALARY. Many business owners don’t retire, they slow down. They keep earning an income from their business and don’t need the RRSP money but are forced to withdraw and pay taxes. Many have regretted buying RRSPs as their bankers and tax planners advised them to do so years ago.
Now after having said all this,
