When I first incorporated, I assumed paying myself would be the easiest part. I had done the hard stuff: picked a name, opened the bank account, started landing work. Then I realized I did not know how to get money out of the company. One person told me to just transfer it whenever I needed it. Please do not do that. In Canada there is no such thing as an LLC; if you have incorporated in Ontario, you own a corporation, and it is a separate legal person from you. Money leaves it in two main ways.
Option one: salary
You become an employee of your own company. The corporation registers a payroll account with the CRA, withholds income tax and Canada Pension Plan contributions from each pay, remits them monthly, and issues you a T4 in February. Salary is a deductible expense for the corporation, so it lowers corporate tax. It also builds RRSP contribution room and CPP entitlement, and lenders like seeing it when you apply for a mortgage in Ottawa’s housing market. The cost is CPP: as both employer and employee you pay both halves.
Option two: dividends
Dividends are paid out of after-tax corporate profit to shareholders. No payroll account, no CPP, no source deductions; you receive a T5 and pay personal tax on the grossed-up amount with a dividend tax credit that roughly compensates for the tax the corporation already paid. Dividends are simpler and often a little cheaper in total tax at lower income levels, but they build no RRSP room and no CPP.
Why Ontario’s rate matters here
Small Canadian-controlled private corporations pay a reduced rate on the first $500,000 of active business income: a federal small business rate plus Ontario’s provincial small business rate. The 2026 Ontario budget proposed lowering the provincial small business rate from 3.2% to 2.2%. The lower the corporate rate, the more attractive it becomes to leave profit inside the company, pay yourself only what you need, and invest or hold the rest. That deferral is the main financial reason Ottawa consultants, contractors and tradespeople incorporate.
Most owners land on a mix
A common pattern: enough salary to max your RRSP room and CPP, then dividends for the rest. Another: salary to family members who genuinely work in the business, at a reasonable rate for the work. The right split depends on your other income, your spouse’s situation, whether you want the mortgage-friendly T4, and how much you value CPP at 65. This is precisely what a CPA is for, and the first meeting usually pays for itself. CPA Ontario has a directory; many Ottawa firms specialize in owner-managed businesses.
What not to do
- Do not use the corporate card for groceries. Every personal expense paid by the company is either a taxable benefit or a shareholder loan, and both create paperwork.
- Do not leave a shareholder loan outstanding past the corporate year-end after next. The CRA can add the whole amount to your personal income.
- Do not skip the corporate minute book. Dividends should be declared by a director’s resolution, even if the director is you at your kitchen table in Westboro.
The setup, in order
- Confirm your corporation’s fiscal year-end with your accountant.
- Decide salary, dividends or mix for this year.
- If salary: open a CRA payroll account, set a pay schedule, use payroll software or a bookkeeper to remit.
- If dividends: schedule them (quarterly is common), document each with a resolution, and set aside personal tax.
- Revisit every year-end. The right answer changes as income changes.
Paying yourself is not a transfer. It is a decision with tax, retirement and lending consequences. Make it once a year, on purpose.