Day to Day Operations of a Business: Paying yourself from a Corporation
The first and most important step you must take in paying yourself from your corporation is determining what your personal closed circle is on a monthly basis. Once you have determined this amount based on your family/household’s obligations, necessities and wants, you simply pay this amount from the Corporation monthly.
Paying yourself is typically done in 2 ways:
- By writing a cheque from the corporation and depositing it into your personal account;
- Or by transferring funds from the Corporation to your personal account.
Note that these methods of paying yourself may only apply to a basic corporation structure (just 1 corporation). Cash movement may be different if you have a holding company and trusts.
Here are some important notes on paying yourself:
- Always put “draw” on the memo of the cheque or funds transfer.
- Always print the transaction when transferring funds for bookkeeping purpose.
- When both spouses are shareholders of the corporation, have the corporation write cheques or transfers in both names and deposit it into your jointly held bank account. This is important for income splitting which can save you tax.
At the end of the Fiscal Year, your accountant will work with you to determine the best scenario for the income you will claim on your personal tax return. This may be a combination of using shareholder loan, declaring dividends and declaring wages to get the best overall tax and credit result.
As mentioned earlier, there are many other activities involved in the day to day operations of a business such as paying for expenses, banking, managing your accounts payable and receivable, vehicle operations and record keeping. We will cover these over the next few weeks in our blogs so please check our website regularly.