How Much Should You Pay Yourself as a Business Owner?

One of the toughest questions many entrepreneurs face is: “How much should I pay myself as a business owner?” On one hand, you deserve compensation for your hard work. On the other, your business may need cash flow to grow and cover expenses. Striking the right balance isn’t just about numbers, it’s also about tax planning, compliance and your long-term financial health. In this blog, we’ll explore different ways to structure your compensation as a Canadian business owner, the pros and cons of each method and how to choose the right approach for your situation.  

TLDR

Determining how much to pay yourself as a business owner depends on your business structure, profitability, tax obligations and long-term goals. Owners typically pay themselves either through a salary or dividends, or a mix of both. The best choice ensures you meet personal needs, stay compliant with Canadian tax rules and keep your business financially sustainable.  

Understanding Business Structures and Compensation

The way you pay yourself often depends on your business structure:

• Sole proprietorship: Owners usually withdraw profits directly, reported as personal income.
• Incorporation: Business owners can pay themselves via salary, dividends or both. This provides more flexibility and tax planning opportunities.

Choosing the right structure impacts your taxes, retirement savings and even how lenders or investors view your business.  

Salary vs. Dividends: Which Works Best?

Two common methods of compensating yourself are:  

Salary

• Provides stable income.
• Contributes to CPP (Canada Pension Plan).
• Allows RRSP contribution room.
• Helps establish personal creditworthiness.

 

Dividends

• Taxed at a lower rate in many provinces.
• Offer flexibility in timing (you can choose when to declare them).
• Do not create CPP or RRSP contributions.

In many cases, business owners use a combination of salary and dividends to balance personal cash flow and tax efficiency.  

Tax Considerations for Canadian Business Owners

Understanding tax implications is critical. Paying yourself entirely through salary might result in higher payroll deductions, but it gives you CPP and RRSP benefits. On the other hand, dividends reduce immediate tax burdens but limit retirement contributions. A well-planned business tax strategy can help you minimize liabilities and maximize long-term savings. Consulting with an accountant is essential to avoid common pitfalls.  

Setting the Right Amount

How do you determine the actual figure? Consider:

1. Personal living expenses – Ensure your income covers essential needs.
2. Business cash flow – Don’t pay yourself so much that it starves your business.
3. Industry benchmarks – Look at what business owners in similar sectors typically earn.
4. Growth plans – Reinvest profits if you’re aiming to scale quickly.

A rule of thumb: Pay yourself enough to maintain financial security but not at the cost of your company’s stability.  

Common Mistakes to Avoid

When deciding how much to pay yourself, avoid these common missteps:

• Paying yourself without considering taxes.
• Taking too much too soon, leaving your business underfunded.
• Not documenting payments properly (risking compliance issues).
• Ignoring future retirement needs.

 

Should You Revisit Your Compensation Plan?

Yes. Business conditions, profitability, and personal needs change over time. Review your compensation strategy annually to ensure it’s still the most effective approach for both you and your business.  

Conclusion

There’s no one-size-fits-all answer to how much you should pay yourself as a business owner. The right amount depends on your structure, tax planning, and long-term goals. A thoughtful mix of salary and dividends often provides the best balance, but your situation may differ. Working with an experienced accountant ensures you remain compliant, minimize taxes and keep both your personal and business finances healthy.  

FAQs

Should I pay myself weekly or monthly?

It depends on your cash flow, most incorporated owners choose monthly for consistency and tax planning.  

Is it better to take salary or dividends?

A mix of both is often best, depending on tax efficiency and retirement planning.  

Can I change how I pay myself later?

Yes, you can adjust as your business grows or circumstances change.  

How much is “too much” to pay myself?

If your withdrawals jeopardize your business’s ability to pay bills, reinvest or grow, it’s likely too much.