This is a common question I get from owners of corporations.

The answer depends on the person. Do you want CPP (Canada Pension Plan) when your retire? Do you want to invest in RRSPs? Are you disciplined enough to invest for retirement? Will your investments provide a better retirement income than CPP? Do you want to split income with a spouse or adult children going to a post-secondary school?

If you take wages you will have to pay into CPP. As you are the employer and employee you will have to pay 9.9% up to $4851 towards CPP in 2014. Half is paid by the employer and half by the employee. Self-employed persons pay both portions.

If you choose to only take dividends then there is no CPP to pay. You will also not increase your RRSP contribution room. Saving $4851 in CPP contributions also means you will not be adding to the CPP retirement amount. I recommend those that take this route put those savings into a TFSA to save for retirement. You need to be disciplined as you will not get the CPP payments when you retire. You can also invest inside the corporation. If you are not disciplined then wages may be a better choice.

The average CPP retirement payments are $607.33 per month if you retire at age 65. The maximum is $1,038.33. Consult with a financial planner to determine your options and make sure your investments will exceed this amount.

There are other strategies to be taken into consideration with tax planning. You can do a combination of things in your overall tax strategy. It is best to consult a financial planner for your particular situation. You need to put some money into retirement planning.

Les Grajkowski

Certified Financial Planner


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