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Shareholder Loans, Dividends or Salary: How to Pay Yourself as a Small Business Owner

Hey there, Canadian business owners! When it comes to money matters, making smart financial choices is key. If you're wondering how to compensate yourself as a business owner or shareholder, there are a few popular options to consider: shareholder loans, dividends, and salary. Let's dive into the nitty-gritty of these choices and figure out which one suits your business best.

Shareholder Loans: Flexibility and Control at Your Fingertips

Alright, picture this: you can borrow money from your own company through shareholder loans. It's like borrowing from the bank, but without all the red tape. With this option, you have flexibility on interest rates and repayment terms. Shareholder loans work well for quick cash flow needs or when you want to invest in something exciting.

But you must be careful. You have to use, at a minimum, the current interest rate set by the CRA, and they MUST be repaid within one year of the end of the fiscal year, otherwise it could be considered taxable income. And since shareholder loans aren’t tax-deductible for your business like a paid salary expense would be, you’d end up being double taxed.

Keep the paperwork airtight in case you end up in an audit. It’s best to proceed with caution when it comes to the CRA and Shareholder Loans.

Dividends Sharing the Profits with Style

Now, let's talk about dividends. They're generally the big attraction for your shareholders, rewarding them for their investments with a slice of your company's profits. Dividends (or “Draws”) are perfect if your business is consistently recording a profit. They create a passive income stream for shareholders, and they can be a tax-efficient way to distribute wealth.

However, keep in mind that regular dividend payments rely on sustained profitability. So, make sure your business is making money and has a healthy cash flow before doling out any payments.

You’ll need to have Shareholder Agreements signed and in place, and at least one class of shares, which come with rights to your company. These rights include the right to vote, receive dividends on profit, and receive remaining property upon dissolution.

The bottom line: Shares can work great for your company, but also require a lot of careful legal consideration.

Salary: Giving Yourself a Steady Income

Who doesn't love a regular paycheck? By paying yourself a salary, you can enjoy the stability and security of a steady income. You are your own employee! Plus, if you opt in, you can be eligible for benefits like CPP contributions and employment insurance. But once your opt into a benefit program such as EI, you cannot opt out.

And remember that salaries come with additional costs, like payroll taxes (Employer Portions), WSIB, vacation pay, overhead cost of processing payroll, etcetera.

Also, ensure your salary is reasonable and justified based on your responsibilities and market rates. After all, you don’t want to poke the CRA bear.

Remember that payroll also introduces a host of new business tasks for you. Not only will you need to handle a recurring payroll and pay for the processing, you’ll also need to look after government filings like the T4, ROEs, T2200, etcetera. Depending on your own workload, you might need to outsource or hire someone in-house to handle it for you, which of course is an additional cost.

Making the Right Move: Considerations and Expert Advice

Choosing between shareholder loans, dividends, and salary isn't an easy part of operating a business. It's crucial to consider what your business aims to achieve, its cash flow requirements, and the tax implications.

You should always consult with your accountant, bookkeeper, lawyer or tax professional. They'll provide tailored guidance and help you understand all the ins and outs of this decision.


When it comes to your compensation, it's important to know your options. Shareholder loans, dividends, and salary each have their own perks and things to consider.

Shareholder loans give you flexibility and control, while dividends let you share the wealth with your shareholders. Salary offers stability and aligns with traditional employment practices.

By keeping your business goals in mind and seeking advice from financial pros, you can make an informed choice that suits your Canadian business like a glove.


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