An owner's draw is money a sole proprietor or partner takes out of the business for personal use, which is not a deductible expense and not a salary.
In an unincorporated business, the owner and the business are the same taxpayer, so taking money out is an owner's draw, not a wage. Draws are not deductible and do not reduce business income; the owner is taxed on the full net profit of the business regardless of how much they withdrew.
This differs sharply from a corporation, where an owner takes salary (deductible, with payroll) or dividends (from after-tax profit). Confusing a draw with a deductible expense is a common bookkeeping error for sole proprietors, draws reduce equity, not profit.
A sole proprietor earns $80,000 net profit and withdraws $60,000 for personal living costs. She is taxed on the full $80,000, not $20,000, because the $60,000 draw is not a deductible business expense.
Our certified accounting firm handles this for businesses and individuals across Canada, at fixed fees with no surprises.
Book a Free 15-Minute CallCommon questions regarding our compliance workflows and service guarantees.