Taking Money from your Corporation Part 3

The 3^rd main way that you will take money from you corporation is through payroll.  Payroll can come in the form of wages, salaries, bonuses, benefits, severance and more.  Payroll may be good if you have a lot of employees, however it is very inefficient if you are a small corporation with little to no employees!  Payroll brings great administrative work, regular $ remitting requirements, and extra CRA filing requirements.  If you are late on a payroll remittance by even a day you could wind up with large penalties, tacking on interest daily.  Having payroll also makes you more prone to a CRA audit as many CRA audits begin with Payroll Trust Exams!  There are many reasons to stay away from payroll, so please do talk to us about your options. 

The key when deciding how to take money from your corporation is understand the rules and follow them.  Now that we’ve outlined Shareholder Loans, Dividends and Payroll in this blog series you have a little understanding of what you can and can’t do.  Here is my tip to you: The best way to take money from your corporation or pay yourself is to simply take draws monthly of what you need to live on (your closed circle) and then when tax planning at the corporation’s year end, we can decide if the draws you took were shareholder loan, dividends, wages or a combination of!  This principal applies the same for taking out a lump sum when necessary.  Keep in mind that if you are married and your spouse is also a shareholder of the corporation, the draws should be in both of your name and put into a joint bank account to give maximum control of income splitting. This is very efficient for tax planning and is legal as you are allowed to borrow/draw money (shareholder loan) from your corporation for up to a year past the corporation’s year end.  In the case of the tip I just gave you, we wouldn’t even need to go past the current corporate year end before we claim it as income, and if there is a reason to not claim it as income this year then we have the option of deferring it.

You now have some great knowledge on the basics of taking money out of your corporation.  Do it wisely and save many headaches and taxes, putting more in your pocket!  For questions, to talk further about this topic and others, or to look at Kustom Design taking care of your corporate accounting and tax needs, don’t hesitate to contact us!