Since each apply to you, Linda, meaning you may select both choice. 

When an organization pays a wage, it deducts that wage from its enterprise revenue. So, say your company earns $100,000 per yr, and also you pay $75,000 out as a wage. The wage would cut back the company’s taxable revenue to $25,000 (ignoring different enterprise bills). 

Say you reside in Saskatchewan, Linda. Your company, assuming it certified for the small enterprise deduction, would pay 11% company tax on that $25,000 of revenue, leaving $22,250 in money. I believe over time that is how the $100,000 of money you’ve at the moment has been gathered.

What’s a dividend?

A dividend is a fee of after-tax company financial savings to a shareholder. Dividends are taxed personally at decrease tax charges than wage to account for the truth that company tax was already paid on the earnings. In a really perfect world, the dividend can be taxed at 11% much less when paid to you and lead to excellent integration in my instance however the precise distinction can range. The tax charge is at all times decrease on dividends than wage.

In any occasion, Linda, you could possibly pay out your $100,000 in money as dividends now, over the following few years, or in retirement. 

What you are able to do with dividends

When you did it now, you’ll pay plenty of tax because the dividends can be along with your wage for the yr. However if in case you have room to contribute to a registered retirement financial savings plan (RRSP), you could possibly use the cash to be invested and progress tax deferred. A RRSP contribution might greater than offset the tax on the dividend. 

For instance, if in case you have a $75,000 wage, pay a $100,000 dividend, and have $100,000 of RRSP room to make a RRSP contribution, the web consequence could possibly be a $7,000 tax refund, totally offsetting the tax on the dividend (assuming Saskatchewan residency and ignoring different deductions or credit). 

When you paid the dividends over the following few years, you could possibly do that to high up your wage assuming you will semi-retire, as you alluded to doing. For example, if your corporation revenue went from $100,000 to $50,000, you would possibly cut back your wage to $50,000 and take some dividends to high up your private money move wants. 

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