Since you are the sole owner and employee of your IT contracting corporation in Ontario, here’s how you can pay yourself and manage taxes:
1. Paying Yourself a Salary
Yes, you are considered an employee of your own corporation if you take a salary. Your corporation must:
- Deduct income tax and CPP contributions (you are not required to pay EI as the owner).
- Pay the employer’s portion of CPP.
- Issue a T4 slip at year-end.
You can:
- Pay yourself a lump sum or regular paycheques.
- If paying a lump sum, ensure deductions (taxes/CPP) are properly calculated and remitted.
Employer Payroll Taxes:
Your corporation must pay the employer’s CPP contributions (matches the employee’s CPP amount). This is an added expense to your business.
2. Setting Up Payroll and Remitting Taxes
Since you’re paying a salary, you must:
- Register for a Payroll Account with CRA (if not already done).
- Withhold and Remit Deductions (income tax and CPP) by the 15th of the following month after payment.
- Issue a T4 Slip at year-end.
- File a T4 Summary with CRA.
Unlike sole proprietors, corporate salaries cannot be deferred for tax time in April; remittances must be made throughout the year.
3. Alternative: Paying Yourself Dividends
Instead of a salary, you can take dividends, which:
- Avoids CPP contributions.
- Is taxed at a lower rate than salary.
- Requires issuing a T5 slip instead of a T4.
A mix of salary + dividends can be optimal for tax efficiency.
Next Steps
- If choosing salary, set up payroll, remit deductions, and report earnings on a T4.
- If choosing dividends, ensure your corporation has profits and issue a T5 at year-end.
- Consult an accountant to optimize tax savings.
if i choose to pay myself 150,000 per year in ontario
If you decide to pay yourself a salary of $150,000 per year in Ontario, here’s how the taxes and payroll deductions will work:
1. Payroll Deductions (Employee Side)
As an employee of your corporation, your salary will be subject to:
- Federal & Provincial Income Tax
- Canada Pension Plan (CPP) Contributions
- (Employment Insurance (EI) is optional for owners, so I’ll assume you’re opting out.)
Estimated Deductions for 2024 (Employee Side)
| Deduction | Amount (Approx.) |
|---|---|
| Federal Income Tax | ~$24,274 |
| Ontario Income Tax | ~$11,334 |
| CPP (Employee) | $3,867.50 (Max for 2024) |
| Total Deductions | ~$39,475 |
| Net Salary (Take-Home Pay) | ~$110,525 |
2. Employer Costs (Corporation Pays)
Your corporation, as the employer, is also responsible for matching the CPP contribution:
| Expense | Amount |
|---|---|
| Employer CPP | $3,867.50 |
| Total Employer Cost | $153,867.50 |
So, to pay yourself a $150,000 salary, your company needs to budget $153,867.50.
3. Payroll Remittances to CRA
Since your salary exceeds $150,000, you’ll likely be a regular remitter:
- You must remit deductions (income tax + CPP) by the 15th of the following month.
- Set up a CRA payroll account if you haven’t yet.
- Use CRA’s online payroll calculator to verify exact remittances.
4. Alternative: Salary vs. Dividend
Since dividends are taxed at a lower rate than salary, you might consider a mix of salary + dividends:
- Paying part salary (e.g., $80K) + part dividends ($70K) could reduce CPP costs and provide a better tax-efficient balance.
- Dividends are not subject to CPP, so you avoid the employer/employee CPP contributions.
- However, dividends do not create RRSP contribution room.
Next Steps
- Register for a CRA Payroll Account if you haven’t.
- Determine a payroll schedule (bi-weekly, monthly, or lump sum).
- Calculate and remit payroll taxes monthly.
- Issue a T4 at year-end for personal tax filing.
Marc Laflamme 