How to pay yourself as a business owner

Learn how different types of business owners pay themselves. And get some tips on how much.

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How to pay yourself as a sole proprietor, partner or corporation

Your business structure affects how you take pay and how you’re taxed on that pay. If you’ve never done anything to set up a specific business structure, then you’re automatically considered a sole proprietor.

How to pay yourself as a sole proprietor or partnership

Sole proprietors and partnerships can pay themselves simply by withdrawing cash from the business through an owner’s draw. This could be done as needed or on a regular schedule.

Owner’s draws are counted as profit, rather than expenses, and are taxed at the end of the financial year. When you’re a sole proprietor or partner, the business income is viewed as your personal income and taxed accordingly. It’s a good idea to set aside a percentage of your earnings in a separate bank account throughout the year so you have money to pay the tax bill when it’s due.

How to pay yourself as a corporation

Corporation owners can either pay themselves a salary through payroll or dividends, or a mix of both. The salary shows as an expense on the business books and the owner pays personal income tax on it.

By taking a salary they can claim other personal income tax deductions, show evidence of a regular income if they’re applying for a mortgage, and contribute to a retirement account - but they’ll have to pay both the employer and employee portions of the Canada Pension Plan (CPP). The CPP contributions are a cost for the corporation now but the owner will benefit later when they collect CPP.

Paying themselves through dividends only means they miss out on contributing to a retirement account but dividends are taxed at a lower rate than salary. It’s a choice of more cash left in the business now but less cash later in life.

By using a mix – a modest salary topped up with dividends from profits – the owners can ensure the business doesn’t earn over $500,000, which reduces the income tax rate the business has to pay

Get tax advice

While a salary might sound nice, there’s extra admin and extra costs to being a corporation. The numbers don’t always stack up, so definitely speak to an accountant or tax professional to decide what’s right for you.

How much to pay yourself

Once you’ve decided how to pay yourself as a business owner, you still need to decide what to pay yourself. That number needs to strike a balance between what your household requires and what your business needs.

What the business needs

You need to leave enough cash in the business to cover:

  • Expenses: Keep a formal list of what you owe and when it’s due so you don’t draw too much from the business at the wrong time. Accountants say it doesn’t go well when business owners try to guesstimate their cash flow requirements. Keep some money aside for taxes too.
  • Rainy day funds: Tuck away some cash to ride out business disruptions. You might keep enough aside to cover 30, 45 or 90 days worth of expenses, for example.
  • Reinvestment: Hold onto some money for developments and improvements. Someday you’ll want to buy new work tools, try a new marketing idea, or hire a consultant.

What the household needs

Your household budget needs to cover day-to-day living expenses and debt repayments such as mortgages. Don’t forget to make a plan for insurance and retirement, which your employer may have managed before you went out on your own.

Finding a balance

There will be negotiable items in both the home and business budgets. Be prepared for some give and take – especially during the early days of your business.

Typical business owner salary or pay

Most business owners take only a modest pay – just enough to meet household living expenses. The rest of the cash is left in the business where it acts as a float to cover against a lull in revenue or unexpected business expense. If cash reserves build up in the business, an owner might take out extra ‘bonus’ payments.

So while there aren’t any worthwhile stats on average business owner salary or income (each business is different after all), their regular pay tends to be conservatively low.

How to pay yourself fairly as a business owner

Irrespective of how much you pay yourself, be fair about it. Pay yourself a consistent amount at frequent intervals. That predictability will help you run a functional home budget.

This is where the rainy day fund for your business can help. Having a reserve of cash in the business reduces the need to dip into your own pocket when there’s an unexpected expense at the shop or office. And having that financial security in your personal life helps clear your head to be a better business manager.

An accountant or bookkeeper can help you figure out how to pay yourself as a business owner. They’ll help you work out an amount for now and a plan for the future.


Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.

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