Getting Money Out of Your Corporation

by Natasya Grisella

Thu, 25-September-2025

As a business owner, you may have surplus cash building up inside your corporation, but what is the most tax-efficient way of withdrawing funds? It is important to plan ahead so that you can decide what works best for your situation and keep more of what you earn.

Here are 5 ways to withdraw money from your business in a tax-efficient manner.

1. Salary vs. Dividends

Business owners often use a mix of salary and dividends to take income from their businesses. Deciding on the right balance requires understanding how each affect both corporate and personal taxes.

If you pay yourself a salary, it is tax-deductible from your corporation and reduces your taxable corporate income. However, your salary will be taxed based on your individual marginal tax rate.

Dividends allow you to draw profits without the payroll obligations that come with a salary. While they can be more tax-efficient, they do not create Registered Retirement Savings Plan (RRSP) contribution room or allow for certain tax deductions tied to a salaried income, such as childcare expenses.

2. Capital Dividend Account (CDA)

The CDA allows your corporation to pay out certain amounts to Canadian resident shareholders as a tax-free dividend. Be aware of the legal rules or consult with an accountant to determine what qualifies for the CDA and how withdrawals must be properly documented.

3. Whole Life Insurance

Whole life insurance can act as a tax-sheltered way to grow your wealth inside your corporation. Over time, this can create a source of tax-free withdrawals for your shareholders or beneficiaries, as it can boost your CDA balance.

4. Refundable Dividend Tax on Hand (RDTOH)

If your corporation earns passive investment income, you will likely pay additional tax. These amounts accumulate in an RDTOH account, and part of the tax is refunded to the corporation when you pay yourself dividends

5. Shareholder Loan Repayments

Consider moving other assets of value into your corporation for investment purposes. This may include investment real estate or collectibles. When you transfer your investment assets into your corporation, you create future opportunities for tax-free withdrawals via shareholder loan repayments.

Understanding the most tax-efficient ways to withdraw money from your business is an essential part of navigating the complexities of being a business owner. Most of the time, there is not one single strategy that works for all business owners. Your approach will depend on your priorities, income needs, long-term plans, and how your corporation is structured.

Planning ahead can help you keep more of what you have earned. If you would like to explore which strategies work for your situation, we encourage you to check in with your financial advisor and tax planner.

Frequently Asked Questions

We reached out to Jason Ding CPA, Co-founder of Notion CPA, who shared his insights on tax planning considerations.

1. Can I combine different strategies to be more tax-efficient?

Yes, absolutely. Generally, there should be a pragmatic approach when taking money out of your corporation. A review of both your corporate and personal situation should be considered.

2. Are there tax-free ways to withdraw money from my corporation?

Most of the time, money taken out of a corporation, like salary or dividends, is taxable. One exception can be a shareholder loan. In certain situations, you can borrow from your corporation without paying tax immediately.

However, a shareholder loan can be quite complicated. Factors including interest rates, what the money is used for, and how your company normally handles loans, all affect whether the money stays tax-free

3. What mistakes do business owners make when withdrawing money, and how can I avoid them?

The most common mistakes we see are:

Not taking any dividends or payroll when shareholders don’t need money from their corporation.
Increasing salary or dividends to cover higher personal costs (e.g. bigger home, rising interest rates) without stepping back to see if a short-term loan would be more appropriate.
Taking out extra salary just to maximize RRSP contributions, even though RRSPs are often not the most effective option for business owners.

Withdrawal strategies can be complex, so it is important to get professional advice from your accountant before making decisions.

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