What are Dividends?

Dividends are payments from a company to its shareholders. They are usually paid out of the company’s profits and it’s usually paid in cash. Now, if your a small corporation like most of our clients, it’s likely that you’re just paying yourself and not several shareholders.  

Dividends can only be paid if your company is showing a profit and then it’s paid out of profit after income tax. You can pay yourself monthly and retroactively declare the amount - let’s say at the end of your fiscal year for example. 

There are many, many, many reasons why someone would opt to pay themselves this way, but there are also equally many reasons why someone would not want to pay themselves this way. 

For example, typically, T5 income isn’t looked at as strongly as regular T4 Income for mortgages and loans. But, your T5 income is also taxed significantly less than your T4 income would be. Also, T5 income earners don’t contribute to the Canada Pension Plan (CPP) on their T5 income, so that’s also something else to consider for your long-term retirement and financial planning. 

Each situation is a little different so make sure you speak with an accountant to get the best picture for your personal tax situation. Don’t forget to report your income on a T5 and file it with the Canada Revenue Agency by the end of February every year.

If you’re having questions about your long-term financial planning, reach out to us and we’ll connect you with the right team.