[BC] Newly incorporated company for my new IT contracting job. How do I pay myself?

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Jul 15th, 2021 10:45 am

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Jul 15th, 2021 2:46 am

HamsterDad [OP]: Newbie; Nov 25, 2020; 76 posts; 51 upvotes

Jul 15th, 2021 2:46 am

[BC] Newly incorporated company for my new IT contracting job. How do I pay myself?

As the title states, I’ve just been hired full time to work as a software dev at a local company. They asked me to incorporate so I did. They will be paying my incorporation (ie, sending the bi-weekly paycheques to my business chequeing account (BMO free eBusiness Plan).

So my question is: how do I pay myself? What’s the best way to properly send money from my business chequing account to my personal chequing account, whilst minimizing overall tax?

Any help would be greatly appreciated. Thank you!

Side question: does salary amount matter in this question? I’m being paid $110k.

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Jul 15th, 2021 9:14 am

BoatyMcBoatface: Member; Jul 31, 2017; 422 posts; 509 upvotes; Toronto

Jul 15th, 2021 9:14 am

You just pay yourself a salary and remit the payroll taxes to CRA. You can also pay dividends when you have the retained earnings. Your biggest issue is being classified as a Personal Services Corporation..

" According to the Canadian Revenue Agency, a personal services corporation is a business formed by someone to provide services to another business or entity that an employee would usually perform. Instead, the person doing the work is considered to be an incorporated employee, rather than a self-employed person or a contractor.1

If the Canada Revenue Agency decides that your corporation fits this definition, you are not allowed to claim any of the standard business expenses, including the Small Business Deduction. You'll see income tax implications as well. This is because businesses (whether sole proprietorships or corporations) have many more potential tax deductions available to them than employees do. "

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Jul 15th, 2021 10:45 am

jkwan18: Sr. Member; Feb 23, 2005; 961 posts; 79 upvotes

Jul 15th, 2021 10:45 am

There are few ways to do it. You can either give yourself a salary and file monthly payroll remittances each month, or just draw out money throughout the year, and at the end of the year, determine if you should give yourself a dividend or bonus to "offset" the amounts you have taken throughout the year. You should reach out to an accountant if you don't have one already. The accountant should structure a tax plan that makes sense for your situation.

I agreed with the above that your business may be classified as a PSB. You can find out more about it here: https://rethinkcpa.ca/how-to-avoid-bein ... -business/

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