Yes, you can pay dividends to your spouse from your corporation, and this can be a legitimate tax planning strategy. However, there are important rules about who owns shares, how dividends are calculated, and potential attribution rules that may apply. The key is ensuring your spouse actually owns shares in the corporation and that the dividend is reasonable based on their ownership stake. Unlike salary payments (which require work performed), dividends are distributions of corporate profits to shareholders based on share ownership. It's crucial to understand the difference between these two payment methods: Dividends: - Paid based on share ownership percentage - No requirement for work or services performed - Subject to dividend tax credit at personal tax level - No payroll deductions needed - Must be declared formally by the corporation's board Salary/Wages: - Paid for actual work completed - Deductible by the corporation as business expense - Subject to income tax withholding and EI/CPP contributions - Requires payroll remittance to CRA - Must be reasonable for services rendered If your spouse works in the business, you might use a combination of both salary and dividends.
No, dividends are a separate option. You can pay dividends based on share ownership without your spouse doing any work. However, if your spouse works in the business, a salary might be more tax-efficient depending on your tax brackets and the corporation's profit level.
CRA may question whether the dividend is reasonable relative to ownership. This could trigger an audit or reassessment. Always ensure dividend amounts match your spouse's actual share ownership percentage to avoid this risk.
Yes. Your spouse reports the dividend as dividend income on their personal tax return and receives a dividend tax credit (federal and provincial). They do not report it on your return.
Only if you transferred shares to your spouse for less than fair market value or under certain trust arrangements. If your spouse legitimately owns shares and receives dividends proportional to ownership, attribution rules generally do not apply.
You cannot pay dividends if the corporation has no retained earnings or available profits. Doing so could breach corporate law and create liability. Only declare dividends when your financial statements support them.