How to pay yourself from your business in Canada

Published Monday 2 February 2026

Table of contents

• What to consider before paying yourself
• How to pay yourself as a sole proprietor, partner or corporation
• Step-by-step guide to paying yourself
• Pros and cons of each payment method
• How much to pay yourself
• Typical business owner salary or pay
• How to pay yourself fairly as a business owner
• Getting your payment strategy right
• FAQs on paying yourself as a business owner

Key takeaways

• Choose your payment method based on your business structure: sole proprietors and partnerships use owner's draws, while corporations can pay themselves through salary, dividends, or a combination of both to optimize tax benefits and cash flow.
• Set up proper documentation and processes for each payment type: record owner's draws as equity reductions, establish formal payroll with CRA registration for salaries, and ensure board approval with proper T5 filing for dividend payments.
• Balance your personal financial needs with business cash flow by paying yourself conservatively and consistently, ensuring the business maintains 30-90 days of operating expenses plus funds for growth opportunities.
• Consult with an accountant or tax professional to determine the most tax-efficient payment strategy for your specific situation, as each method has different implications for CPP contributions, tax deductions, and retirement planning.

What to consider before paying yourself

Before you decide how to pay yourself, it's helpful to look at the big picture. Your business's financial health, its legal structure, and your personal financial needs all play a part in making the right choice. Taking a moment to review these areas will help you create a payment strategy that supports both you and your business for the long run.

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

Business structure determines your payment options and tax obligations. In Canada, you can pay yourself through owner's draws, salary, or dividends depending on how your business is set up.

If you haven't formally registered a business structure, you're automatically a sole proprietor, which means you may have to file a T1 return if you meet certain conditions, such as needing to pay tax for the year.

How to pay yourself as a sole proprietor or partnership

Owner's draws let sole proprietors and partnerships withdraw money directly from business accounts. Here's how they work:

• Timing: Take draws as needed or on a regular schedule
• Tax treatment: Draws count as profit, not business expenses
• Personal taxes: Business income becomes your personal income for tax purposes and is typically reported on a Form T2125, Statement of Business or Professional Activities, which is filed with your personal T1 return.
• Tax planning: Set aside money throughout the year to cover your tax bill

How to pay yourself as a corporation

Corporation owners have three payment options: salary, dividends, or a combination of both.

Salary benefits:

• Tax deductions: Claim personal income tax deductions
• Mortgage applications: Show proof of regular income
• Retirement savings: Contribute to retirement accounts
• Canada Pension Plan (CPP) contributions: Build future pension benefits

Dividend benefits:

• Lower tax rate: Pay less tax than salary income
• Business efficiency: Keep more cash in the business
• Flexibility: Take payments based on business performance

Combination strategy: Use a modest salary plus dividends to optimize tax rates and maintain business cash flow.

Get tax advice

Paying yourself a salary as a corporation comes with additional administration and costs. An accountant or tax professional can help you compare the options and decide what is right for you.

Step-by-step guide to paying yourself

Once you know which method fits your business, the next step is to put it into practice. Here's a simple breakdown of how to handle each payment type.

Setting up an owner's draw

Taking an owner's draw is the most straightforward method, common for sole proprietors.

1. Decide on the amount and frequency of your draw based on your business's cash flow and your personal needs.
2. Transfer the money from your business bank account to your personal bank account.
3. Record the transaction in your accounting software as an 'owner's draw' or 'drawing'. This is not a business expense, but a reduction in owner's equity.

Setting up payroll for a salary

If you're a corporation and choose to pay yourself a salary, you'll need to set up a formal payroll process.

1. Register for a payroll program account with the Canada Revenue Agency (CRA).
2. Choose a payroll schedule (for example, bi-weekly or monthly).
3. Calculate the required deductions for each paycheque, including CPP contributions and income tax.
4. Pay the net amount to yourself and remit the deducted amounts to the CRA by their deadlines.
5. Issue a T4 slip at the end of the year, which is generally required if the total remuneration paid in the calendar year was more than $500.

Distributing dividends

For corporations, your company pays dividends from its after-tax profits.

1. Ensure your corporation has sufficient retained earnings to cover the dividend payment.
2. The board of directors must approve the dividend payment and document it in the company's meeting minutes.
3. Issue the payment to the shareholder (yourself) from the business bank account.
4. Provide a T5 slip to the shareholder and file a T5 summary with the CRA, as the penalty for late filing can range from $100 to $7,500.

Pros and cons of each payment method

Each payment method has its own benefits and drawbacks. Understanding them can help you decide which approach is best for your situation.

Owner's draw benefits and drawbacks

• Pros: It's flexible and simple to administer. You can take money out as needed without complex payroll requirements.
• Cons: It doesn't create CPP contribution room, which can affect your retirement income. It can also be harder to prove a steady income for personal loans or mortgages.

Salary benefits and drawbacks

• Pros: A regular salary creates a predictable income and allows you to contribute to the CPP. It's also a deductible business expense, which lowers your corporation's taxable income.
• Cons: It requires running payroll, which involves more administration and potential costs. You'll also have to pay both the employer and employee portions of CPP contributions.

Dividend benefits and drawbacks

• Pros: Dividends are often taxed at a lower personal rate than salary income, as you may be able to claim a dividend tax credit for payments received from taxable Canadian corporations. There are no CPP contributions required on dividend payments.
• Cons: Because your company pays dividends from after-tax profits, they leave your corporation's tax bill unchanged. They also leave your Canada Pension Plan (CPP) and registered retirement savings plan (RRSP) contribution room unchanged.

How much to pay yourself

Determining your pay amount requires balancing personal financial needs with business cash flow requirements. The right amount covers your living expenses while leaving enough money in the business for operations and growth.

What the business needs

Your business needs cash reserves for three critical areas:

• Operating expenses: Track what you owe and payment dates to avoid cash flow gaps
• An emergency fund: Set aside 30 to 90 days of expenses for business disruptions
• Growth investment: Reserve money for new tools, marketing, or professional services

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 pay themselves conservatively – typically just enough to cover personal living expenses. This approach protects business cash flow and provides financial flexibility.

Why owners choose modest pay:

• Cash flow protection: Keeps money available for business operations
• Emergency coverage: Provides buffer for revenue drops or unexpected expenses
• Growth flexibility: Allows for bonus payments when cash reserves build up

How to pay yourself fairly as a business owner

Pay yourself consistently at regular intervals to maintain stable personal finances. Predictable income helps you budget effectively and reduces financial stress.

Benefits of consistent payments:

• Personal budgeting: Enables reliable household financial planning
• Business protection: Reduces temptation to withdraw emergency funds
• Mental clarity: Financial security improves business decision-making

Professional guidance: An accountant can help determine your optimal payment amount and create a sustainable long-term strategy.

Getting your payment strategy right

Figuring out how to pay yourself is a key part of running your business. By understanding your options and balancing your needs with the business's health, you can build a sustainable strategy.

Using accounting software makes it easy to track your finances, manage payroll, and see your cash flow in real time. Clear, up-to-date information helps you make better decisions about paying yourself.

When you're ready to simplify your books and focus on your business, you can try Xero for free and see how it works.

FAQs on paying yourself as a business owner

Here are answers to some common questions business owners have about paying themselves.

When should I start paying myself?

You can start paying yourself as soon as your business has consistent positive cash flow and can comfortably cover its expenses. In the early days, many owners reinvest all profits back into the business to fuel growth.

Can I change my payment method later?

Yes, you can change your payment method. For example, a sole proprietor might later incorporate their business and switch from an owner's draw to a salary or dividends. It's a good idea to discuss major changes with an accountant.

What should I do in months when my business income is too low to pay me?

Business income often fluctuates. If your business income is too low to pay you in a given month, you may need to skip or reduce your pay for that period. A personal emergency fund helps you manage these ups and downs.

What records should I keep for tax purposes?

Keep detailed records of all payments you make to yourself. For draws, note the date and amount. For salaries, keep payroll records, CRA remittances, and T4 slips. For dividends, keep board resolutions and T5 slips, although the Canada Revenue Agency notes you don't have to prepare a T5 slip if the total amount paid for the year is less than $50. Good accounting software helps organize this automatically.

Do I need special business accounts or software?

It's highly recommended to have a separate business bank account to keep your finances distinct from your personal ones. Using accounting software like Xero helps you track income, expenses, and owner payments accurately, which simplifies tax time and gives you a clear view of your business's performance.