Salary, dividend and owner draw are different records

Salary or wages

A corporation paying employment remuneration generally has payroll withholding, remittance and T4 responsibilities. Income tax is deducted from salary and wages, and CPP/EI treatment depends on the applicable employment facts.

Dividends

A dividend is a return connected to shares, not payment for services. Canadian taxable dividends are commonly reported on a T5 and follow eligible or other-than-eligible dividend rules.

Owner draw

For a sole proprietor or partner, taking cash out is a drawing, not deductible salary to the owner. The proprietor reports net business income; the timing of a bank transfer does not by itself determine taxable profit.

• Record the legal capacity: employee, shareholder or proprietor.
• Do not treat a personal expense paid by a corporation as an unexplained draw.
• Have a qualified adviser review corporate resolutions, payroll, T4/T5 and personal tax effects.