Padgett Niagara

Financial literacy

We have noticed that there is a portion of new business owners that are finding it difficult to transition from sole proprietors to incorporated businesses and how to get money out of the business.

Here are some helpful tips to remember.

1) Know the value of your shareholder account. This is the value you have contributed to your business - it should be a positive number.

2) There are typically two proper ways to get money out of your corporate bank account. They are either payroll deductions or dividends. So what does that mean?

- payroll deductions will prepay your personal taxes, increase your RRSP limit and adds to your CPP. This is also an expense to the corporation so it reduces your corporate taxes

- dividends are considered investment income so they don't prepay your personal taxes, don't add to your RRSP limit or add to your CPP. They are also not a business expense so your corporate taxes will be higher.

So why would someone choose a dividend over a payroll deduction? Well, it depends on your personal situation and needs... so this can change each year. It is important to understand and plan for taxes. This is a key item to consider each year.

We can help you with that. Give us a call.