As a business owner, it is necessary to take out money from the corporation using efficient ways. One of the top methods that people use for paying shareholders is through dividends instead of a salary. So you may be wondering about this option.
You may also want to see the dividends vs salary comparison guide for weighing the two options. In this blog post, we will be going over the benefits of dividends to help you. So here are the top five things you must know.
- Dividends Contribute To CPP
An excellent feature of dividends is that they contribute to CPP. This enables you to reduce the corporate and personal costs of your business. The primary purpose of this payment method is to decrease the tax burden and different company costs.
Typically, employers have to pay 5.7% of the first $64,900 as the CPP. This percentage is for each employee. By using dividends, you can reduce the total CPP cost significantly.
- Offers Easy Access To Money
Salaries are mainly paid once every month at the start of the month. You will not have much control over the payments using this method. However, dividends allow shareholders to access money more easily.
This is because you take out payments any time you want to from the business account. The total amount is declared as a dividend when the year finishes. Dividends will allow you to get money more easily from your company during emergencies.
- Less Paperwork
Another benefit of dividends is that they take less paperwork than salaries. If you wish to get paid through salary, you will have to register a payroll account with the CRA. For every monthly salary, some amount will also be deducted from income taxes.
Luckily, dividends do not require you to register a payroll account. You will also have to pay for the T5 once every year. The overall paperwork and time spent on tax reports will decrease because of dividends.
You can also avoid penalties for late remittances by choosing dividends. Salaries require you to make remittances monthly. Missing this payment will also cause you to suffer from strict penalties.
- Lower Employer Health Tax
Some Canadian provinces have specific laws that require companies to pay an employer health tax. This amount is calculated by the money paid in wages to the employees. You will not have to worry about this tax when using dividends to pay most shareholders.
The employer health tax payment applies mainly to salaries. You can reduce your tax burden by using dividends to pay shareholders.
These are the top four advantages of paying dividends instead of a salary. However, you must also consider other things when deciding about the payment option. For instance, you should compare the advantages of dividends vs salary to determine the most feasible option.
Professional accounting firms can also help you decide on the top payment option. Of course, you should also consider your personal preference. After all, easy access to money through dividends may be more helpful to you.