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Unlocking Tax Savings: Compensation Strategies for Business Owners #shorts

10 Oct 2023 · 1 min

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Bob Gauvreau explains compensation options for corporate business owners: taking a salary (employment income) versus taking dividends (distribution of company earnings). He notes salary is taxed at a higher rate, is subject to withholdings and payroll-related contributions (CPP, possibly EI), and advises aligning compensation choice with personal needs and objectives.

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Let's talk about compensation opportunities. As a business owner from a corporation, you can take a salary or you can take a dividend. Now, a salary is essentially compensation as an employee, it's earning a wage, an hourly rate, a salary, a bonus. Anything like that is considered a salary or a wage. And that comes in as employment income. The other side is as an owner, you can be compensated from the distribution of earnings from the company, which comes out as a dividend on your taxes. Employment income or T4 income is actually tax higher than dividend income. It also is subject to any withholding tax Canada pension plan, potentially employment insurance. So it's really important to understand what your needs are and what your objectives are with your compensation.