Contributing to CPP

Contributing to CPP

Small business owners have the option to receive compensation in the form of salaries or dividends.  Here is a summary of some of the differences.

Salaries

  • are deductible by the company resulting in less tax paid by the company

  • CPP contributions are made on salaries over $3500 per year

  • If sufficient CPP contributions are made:

  • the owner would qualify for CPP disability pension, and their spouse and children under 18 or under 25 and attending post-secondary education would qualify for disability pension

  • if the owner died, their spouse and their children under 18 or under 25 and attending post-secondary education would qualify for CPP survivor pension

  • the owner would receive a CPP pension based on their contributions

  • the owner's estate would receive a $2500 CPP death benefit

  • Do not contribute to EI (unless you opt to contribute in order to receive maternity or care-giver benefits)

  • Create RRSP room

Dividends

  • Are not deductible by the company resulting in more tax paid by the company

  • No CPP contributions so no CPP disability payment, survivor benefits, or pension benefits for the owner

  • No EI contributions so no EI benefits for the owner

  • Do not create RRSP room for the owner

  • Dividends are taxed at a lower personal tax rate (as the company is paying more tax)

Given that the CPP pension is being enhanced, paying salaries may be a good method of generating retirement income. If you are unsure which choice is right for you, contact us today and we will look at your goals, situations, and concerns so that we can provide the best advice for you and your circumstances.

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