Free consult & free copy of book

E-Myth – “Why most small businesses don’t work & what to do about it”

Contact Us


Most 5 star CPA Google reviews in Canada

Read Reviews

Chartered Professional Accountants E Myth

1 Fixed Monthly Fee - Planning | Accounting | Taxes | Consulting

Helping Canadian businesses beat the odds!

Vancouver Accountant | It’s All About The Consideration Between Salary And Dividends

Vancouver accountant warns that the decision whether to do salary or dividends in terms of payments is a really important decision for all small business owners. In fact, it is one of the most common questions that Spiro and Associates gets asked from business owners altogether. In order to dive into their, there has to be a very intricate and in-depth look into the owner circumstances, be it professional and personal and the circumstances of the finances.

It is obviously extremely significant when a small business dives into a noticeably inefficient payment strategy. It is not unusual for someone to come into the office and for a charter professional accountant to find out that an inefficient payment strategy to the owners is costing them double or triple times what it costs to retain an accountant to help them with their business. Effectively, they are missing out on double or triple the prophets and are missing out on the effectiveness and the expertise of retaining an account for the small business. Sometimes business or start out with trying to get everything for as cheap as they possibly can, as they have just bought a small business and are potentially have sent their life savings into it. They think they hire the cheapest person and they end up paying 2 to 3 times what it would cost to pay a put good person with all the extra tax that they could’ve saved in the first place, says Vancouver accountant.

If you consider picking up a fit set of financial statements, or the business owners tax return, there should be some red flags raised if they are both getting paid in completely one or the other, be it salary or in dividends. That is the get paid hundred percent dividends or hundred percent in salary. That is a sure morning that they have not thought enough about it and have not retained good solid advice. Most efficient payment plans have a combination of both salary and dividends within their plan. Be forewarned, that this is not necessarily true all of the time, however it is effective potentially 9/10 times.

As well, of course there can be the ability to split income between owners and their family members when it comes to a small business. So one owner might have income that is not related to the business, however the other owner might not have any income that is related the business. As a charter professional accountant, and an authority in this, Spiro and Associates have to determine not just if it salary and dividends, but who that salary and dividends is going to from within the family. Also there CPP and implications that could potentially happen. So if you’re paying out salary you do have to pay CPP.

However, says Vancouver accountant you can recover the employee portion of CPP when you file your personal taxes, but if you extra play the employee portion of CPP that amount will never come back to you.

What Else Can You Learn About From Vancouver Accountant?

Vancouver accountant says to help a person when they are considered about salary and dividends. Even though you are not an authority on this at all because you are not a charter professional accountant, make sure that you give them the advice to retain a charter professional accountant as it could possibly save them two thirds, or if not three thirds of the tax then if you did it all by yourself.

Have you ever heard the term personal services business risk? These are incorporations call just that as it is technically a punitive tax that will be assessed business owners were denied to be an incorporated employee. This can be very critical as when we have more personal service business risk and personal’s business risk, it’s not yet absolute. However it is just append the pendulum when you either have low risk or high-risk. If you have a moderate to high risk, the chances of you losing a lot of money is very high, and we start to preferred the salary income instead of the dividends.

In terms of if you need to get litigation. Sometimes the dividend strategy can be a little bit more convoluted. In order to betray analytic rate patients better strategy to sometimes a simplistic strategy and salary strip strategy it is a little easier when parties are litigating. The circumstances can in fact affect the decision for salary and dividends. Those are always quantitative and qualitative.

This process can be extremely significant, says Vancouver accountant, in terms of an inefficient him and strategy. It’s not necessarily unusual for a small business or, in particular a new one to get bad advice. And to get behind an inefficient payment strategy. If in fact the owners get behind that payment strategy, it could potentially cost them 2 to 3 times what it costs for accounting services.

There are a couple of theoretical significances and considerations. What they are referring to is that the dividends are not deductible from income when you have to pay corporate and personal tax on the dividends. In fact, what they are referring to is the tax rates when you add up the corporate tax rate and the personal tax rate on dividends, this should roughly be the same as the tax rate on the salary. In practice, there are so many variables that go into that that the integration, although always theoretical, the purpose doesn’t actually always work out that way.

Likely, what will happen is, according to Vancouver accountant, when money is taken out of the corporation, it has to be taken out in either a salary or a dividend. There are not necessarily any other ways that a small business can contribute or can consider. Yes, of course it would be always nice to be take money out tax-free, but that’s just not how the government will allow us to do it. We have to declare salary or dividends to cover the draws that the owners take out of your corporation.