As the owner of a small business, should I pay myself a salary? What deductions would apply?
If your business is not incorporated, whether or not you pay yourself a "salary" is irrelevant for tax purposes because you and your business are considered a single entity by Canada Revenue Agency (CRA). You will be taxed on your net earnings from the business, which you will include on your personal tax return as self-employment income. Thus, there are no "deductions" to be taken from payments you make to yourself. You are not required to pay Employment Insurance, but you will have to pay income tax and Canada Pension. When you file your tax return for your first year of self-employment, you will have to pay any income tax and CPP premiums payable on your employment income
If your small business is incorporated, whether or not you pay yourself a salary is a tax planning decision. Another option is to pay yourself (and other shareholders, depending on share structure) a dividend which is not deductible for the corporation. There are many factors to consider, and professional advice in this area is recommended. If you decide to pay yourself a salary, you will be required to deduct income tax and CPP premiums from your salary, but as owner of the business you might not be eligible to be covered by Employment Insurance
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