The question of salary versus dividends should be reviewed every year with your tax planner and your financial planner, preferably together. Depending on your personal circumstances and the structure of your business, one option may be better than the other.
The comparison
The most simplistic example is to look at a corporation that made a profit during the year of let’s say, $100,000. The owner needed all the money to pay for his or her lifestyle expenses , in other words, no savings. Everything else being equal, this year in Quebec, you are better off taking a salary. than a dividend. After the corporate taxes and personal taxes are deducted you will have roughly $1,200 more in your pocket if you take a salary (the after tax income for a salary would be about $69,300 vs $68,100 if you took dividends).
Matter of opinion
BUT all things are not equal in many cases. There are other things to consider. One example is the following. If you take a salary, you will end up paying around $5,400 in contributions to the Quebec Pension Plan. Their are many individuals that prefer to have this extra $5,400 to either invest in their own company or invest this money by themselves for their retirement and I tend to agree with this strategy. However their are others who believe that the Quebec Pension Plan is sacred and not to be touched. Their is no right or wrong answer, it’s a personal decision.
One thing is certain though. If you have excess money in your corporation that will not be needed to live, it’s best to keep the money in the corporation than taking it out. You will end up paying significantly less taxes in the long run due to personal versus corporate taxes.
As always it’s not black and white. It’s best to consult your Financial Planner and your tax professional. I suggest that you meet both of them at the same time because three heads are better than two! If you do not have a Financial Planner or are looking for a second opinion I suggest you get my free report “The 6 Questions Business Owners Must Ask A Financial Planner Before Hiring One by clicking here.
I have also launched a podcast that is truly unique called “Confessions of an Ex Banker” where I will be exposing the secrets of the financial services industry and showing you ways that you can save thousands of dollars in various fees (most of them hidden!) and show you products that the industry doesn’t show you. Its available to subscribe for at i tunes and you can also get it here. If you do subscribe at i tunes you will automatically get a new episode every Tuesday afternoon.
If you have any questions you can contact me directly at any time at 438-869-4301 or just go to the contact tab on the homepage to view the various ways I am accessible to you.
