How to pay myself as a single person corporation in Ontario? Should I get an accountant?

Question

I'm an IT contractor and required in some of my contracts to have a corporation. I created my corporation, opened a corporate account and have been collecting income for about 6 months now...

... I should probably pay myself.

I learned that there are three ways to do this:

1. I can get a second HST number, transfer money to my personal account, remit HST and pay personal income tax. Nothing complicated.

2. I can run "payroll" including remittances such as CPP and EI,

3. I can pay myself dividends

Any idea why I might pick one method over the other? Payroll doesn't look too complex with some of the tools out there now. I'd get the benefit of EI (and CPP, for what it's worth).

I don't want to make things unnecessarily complex though. It may also not be the best bang for my buck. I've never collected EI in my life, and I don't expect much to come out of CPP when I'm ready to retire.

Transferring money to myself seems too easy... and dividends seem the realm of corporate accountants.

Is it necessary for me to hire an accountant for a small business with almost no expenses, few sources of income, and a single employee? If so, what should I look for in an accountant? Should I be looking for a corporate accountant or a personal accountant?

Thanks.

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N.B. There's a good description here: http://vereecke.ca/index.php/articles/will-that-be-salary-or-dividends/

Answer 1

1. Get an accountant. Now. There are many subtle things that you do not know especially if you are just starting with your own corporation. There is also an issue of corporate tax return that you will have to face pretty soon. You should be looking for accountant that does accounting for corporations, there are companies specializing in small business.

2. I do not think you can "just" transfer money to your personal account. They have to be treated as dividends and treated as such for income tax purposes. Or, as you described, you may pay yourself a salary, but then you have to pay CPP and EI on top of that. When you pay yourself dividends your corporation will need to issue T5 slip for you (accountant will do that) that you will need to use when preparing personal tax return. If you pay yourself salary, corporation will need to give you T4

3. In terms of tax treatment, if we do not take RRSP contributions dividend tax treatment will leave little bit more money in your hands. I'd say if you have RRSP room and/or TFSA room, pay yourself dividends and then do contributions as you see fit, if you need RRSP room, pay yourself salary. TFSA room does not depend on the type of income, so if you have room there, consider filling it first.