Salary is regular employment income paid to an employee or owner-manager, deductible to the corporation and creating RRSP room and CPP entitlement for the recipient.
For an owner-manager, paying yourself a salary is one of two main ways to extract money from a corporation, the other being dividends. Salary is deductible to the company, reducing its taxable income, and it builds RRSP contribution room and CPP entitlement for you, which dividends do not.
The cost is administration: salary requires a payroll account, monthly source-deduction remittances, and a T4. It also triggers CPP from both sides. Most owners use a salary-dividend mix set each year to their income needs, RRSP goals and the corporation's cash position.
An owner pays herself a $100,000 salary. The company deducts it, reducing corporate tax, and she gains RRSP room of 18% of that earned income, while the salary is subject to normal payroll withholdings.
Primary source
- Income Tax Act, s. 6(1) Amounts to be included as income from office or employment
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Taxable income is what is left after you total the income the tax rules include and subtract the deductions you are allowed. Employment and self-employment earnings, most pensions, EI and CPP benefits, interest, dividends, rental profit, the taxable portion of capital gains, RRSP and RRIF withdrawals and most taxable benefits from work all go into the total. Tax is then calculated on that figure and reduced by non-refundable credits such as the basic personal amount.
Current and prior-year forms and publications are free to download from canada.ca, and tax software builds most of them for you as you enter your information. You can also order a paper package by phone or pick one up at participating postal and service outlets during filing season. Which forms apply depends on your situation: a T1 with your slips for employment income, T2125 for self-employment, a T2 for a corporation, T1-ADJ to change a return already filed.
No. Gross income is everything you received before any deductions. Net income comes next, after amounts such as RRSP contributions, union dues, child care and employment expenses. Taxable income is the final step, after further deductions like carried-forward losses, and it is the figure the rate brackets are applied to. Credits, including the basic personal amount, then reduce the tax calculated on that figure rather than the income itself.
The Universal Child Care Benefit was a monthly federal payment for children that counted as taxable income for the person who received it. It no longer exists. It was replaced by the Canada Child Benefit, which is not taxable and is not reported on your return at all. If you are correcting an old return from the years the UCCB was paid, the amount still belongs in income for that year; for current years there is nothing to report.
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Reviewed and fact-checked by Udit Gupta
Ex Big 4 — Ernst & Young, Deloitte · International & cross-border tax specialist · CPA Canada (In-Depth Tax Program) · Chartered accountant, ICAI & MIA
Udit Gupta has over 15 years of experience helping corporations and business owners with corporate structuring, corporate tax filing, bookkeeping, payroll, GST/HST, cross-border tax and CRA representation. Big 4 trained at Ernst & Young and Deloitte, and qualified as a chartered accountant in India and again in Malaysia, he founded his accounting practice in 2014 to serve entrepreneurs, startups and non-resident business owners across Canada. View full member bio.
The Institute of Chartered Accountants of India — member 521458 · Malaysian Institute of Accountants — member CA 44667 · Ex Big 4: Ernst & Young, Deloitte · CPA Canada (In-Depth Tax Program), completed 19 Dec 2023 · In-Depth GST/HST Part I, 12 Jul 2022 · Part II, 5 Jul 2023
Editorial policy. Every page is researched against primary sources — the Income Tax Act, CRA publications and CPA Canada guidance — and every rate or threshold is stated with the tax year it applies to.
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