Many new owners are sometimes not aware that even though they have incorporated, there is a liability to the government with regards to company payroll. As an employee, what you do know is that you receive your pay cheque each month with CPP, EI, and tax withholdings. However, what many don’t know is what the employer has to do with those withholdings.

To comply with CRA, if you have monthly payroll, you must remit the paycheque withholdings to CRA by the 15th of the following month. Failure to miss just one remittance period could mean interest and penalties. Therefore, if you have employees it is essential that you stay on top of your new obligations as a business owner.

CRA had a handy guide that discusses everything you need to know about your responsibilities and how to approach it. You can find that here.

T4001 – Employers’ Guide Payroll Deductions and Remittances

http://www.cra-arc.gc.ca/E/pub/tg/t4001/t4001-e.html

 

Also for your reference, for help calculating your payroll, CRA has an online Payroll Deductions Calculator that you can use. This can be found here.

http://www.cra-arc.gc.ca/esrvc-srvce/tx/bsnss/pdoc-eng.html

 

If you are giving your employees taxable benefits, you should also review the following guide from CRA

T4130 – Taxable Benefits and Allowances

http://www.cra-arc.gc.ca/E/pub/tg/t4130/t4130-e.html

 

Another major item you will need to address is what happens if you don’t have any employees. The answer is simple, you as the business owner, are technically considered an employee as well. You are an employee of your own company and would mostly be subject to the same rules as if you had employees. However, since you are an owner, you would be exempt from withholding EI. The same would also apply to any immediate family also working for your company.

What you now be asking yourself is what happens if you don’t take a salary out of the company. If this is true the next question you have to ask yourself is am I taking money out of my company bank accounts or purchasing personal items with company bank accounts? If the answer is yes, then technically, this is considered as a form of remuneration in the governments eyes. If the amount of money you put into the company is positively offset with your draws out of the company, then you would have to declare your remuneration to the government and report it on your personal tax return.

The nice thing however, is that you have options as an owner. As an owner you can choose to class your remuneration as a wage or as a dividend.

If you class it as a wage then you would have to take payroll withholdings and remit as discussed above. You have further options here as well. You can pay yourself once a year, once every 6 months, once a month, once a week, whatever you choose. The bottom line is you must clear off your net draws out of your company within 2 years. This wage will also reduce your corporate income, meaning less corporate tax to pay. If you are unsure which way you should go, talk to your accountant as they will guide you. Your accountant could even suggest declaring bonuses if its tax advantageous to do so.

If you class it as a dividend, then you would simply just have to pay the taxes by April 30th of the following year. Under this situation, there is no reduction to corporate income, so your corporate tax bill may be higher, but overall, your combined personal and corporate taxes paid should be close to what it would be if wages were declared instead. The catch with dividends however is that your company must be profitable to declare them. If your company is losing money each year, then you simply would not be allowed to declare a dividend.

Each class of remuneration has its advantages and disadvantages. To find out what’s best for you, we can advise you in detail.

 

If you would like more information on the above we would gladly be able to assist you with your needs.