The Four Ways Business Owners Get Paid (CPA)
A Tax-First Framework for CPAs Advising Incorporated Business Owners.
About This Article
This article is written for CPAs advising HNW and UHNW individuals, families, and founders who seek to protect their clients—and their own reputations—through disciplined, strategic coordination with wealth managers.
Executive Summary
For incorporated business owners, how money is extracted often matters more than how much is earned.
Despite this, many owner-managers default to a narrow mix of salary and dividends—leaving substantial after-tax efficiency on the table. Sophisticated planning recognizes four distinct forms of remuneration, each with different tax timing, rates, risks, and long-term consequences:
Salary
Dividends
Capital gains (including surplus stripping under a 50% inclusion rate)
Accessing cash surrender value (CSV) inside permanent life insurance
This paper provides CPAs with a clear, comparative framework for understanding when each method is appropriate—and how coordinated use can materially reduce lifetime and terminal tax.
1. Salary: The Most Visible—and Most Taxed—Form of Pay
How It Works
Salary is paid from the corporation to the shareholder-employee and is:
Fully deductible to the corporation
Fully taxable to the individual at marginal rates
Subject to CPP contributions
Advantages
Creates RRSP contribution room
Predictable and administratively simple
Accepted and understood by all stakeholders
Limitations
Highest personal tax rates apply
No deferral benefit at the individual level
CPP creates additional cash outflow
Poor tool for extracting large corporate surpluses
CPA Insight
Salary is best viewed as baseline compensation, not a primary wealth-extraction strategy for high earners.
Salary optimizes income. It does not optimize wealth.
2. Dividends: Integration with Structural Constraints
How They Work
Dividends are paid from after-tax corporate profits and taxed personally at dividend rates (eligible or non-eligible).
Advantages
No CPP
Potentially lower personal tax than salary
Simple distribution mechanism
Limitations
Not deductible to the corporation
Dependent on integration rules (which shift over time)
Passive income can grind the small business deduction
Creates annual personal tax drag
CPA Insight
Dividends are efficient for lifestyle funding, but inefficient for long-term capital extraction when used in isolation.
3. Capital Gains Surplus Stripping (under a 50% Inclusion Rate)
Why Capital Gains Are Structurally Superior
Under current Canadian tax rules, only 50% of a capital gain is taxable, making capital gains one of the most tax-advantaged forms of remuneration.
For business owners, this opens the door to:
Share redemptions
Estate freezes and refreezes
Pipeline planning
Post-mortem planning
Surplus stripping (when properly structured and compliant)
The Opportunity
When corporate surplus is extracted as capital gain rather than dividend:
Effective tax rates can be materially lower
Tax is deferred until realization
Planning aligns with succession and exit
The Constraint
Surplus stripping is highly scrutinized by the Canada Revenue Agency, and must be:
Purpose-driven
Legally supported
Substantiated by real transactions
Coordinated with legal counsel
CPA Insight
Capital gains are the most powerful but most sensitive remuneration form. Precision matters.
Poorly structured surplus stripping creates audit risk.
Properly structured capital planning creates generational efficiency.
4. Accessing Cash Surrender Value (CSV) Inside Life Insurance
The Least Understood—and Most Mispriced—Form of Remuneration
Permanent life insurance is often misunderstood as an expense. In reality, corporate-owned permanent insurance creates a parallel balance sheet with unique tax characteristics.
How CSV Access Works
Corporate funds pay insurance premiums
Cash value grows tax-deferred inside the policy
CSV can be accessed via:
Policy loans
Collateralized lending
Withdrawals (structure-dependent)
Importantly:
No immediate personal tax
No income inclusion at time of access
Liquidity without triggering salary, dividends, or capital gains
At Death
Death benefit flows to the corporation
Credit (less ACB) to the Capital Dividend Account (CDA)
Funds can flow tax-free to shareholders or the estate
CPA Insight
CSV is not income.
It is tax-advantaged liquidity.
Insurance doesn’t replace salary, dividends, or capital gains—it complements them by solving timing.
Comparing the Four Forms (High-Level)
Method Corporate Deduction Personal Tax Timing Tax Rate Efficiency Best Use
Salary Yes Immediate Low Baseline Income Dividends No Immediate Moderate Lifestyle Cash Flow
Capital Gains Partial Deferred High Exit & Surplus
CSV Access N/A Deferred / None Very High Liquidity & Estate
Why CPAs Must Orchestrate—Not Isolate—These Tools
Most planning failures occur when remuneration methods are evaluated independently.
Sophisticated planning asks:
What is the client’s lifetime tax exposure?
When is liquidity actually required?
What is the expected terminal tax bill?
Where can tax deferral compound the longest?
This is where collaboration with specialized wealth managers—such as Senatus Wealth—becomes valuable. The CPA defines the tax reality; the wealth manager engineers the execution.
Key Takeaway: The Question Is Not “How Do I Get Paid?”
The real question is:
Which form of remuneration creates the lowest lifetime tax cost—without increasing risk or audit exposure?
For business owners, the answer is almost never singular.
The most successful plans blend all four, using:
Salary for foundation
Dividends for lifestyle
Capital gains for structural extraction
CSV for tax-free timing flexibility
For CPAs, mastering this framework transforms compensation planning from annual compliance into multi-decade value creation.
Take Action
What do you think? Does this fit with your views? Let us know, and let’s have a conversation.
Reach out to me directly at brett@senatuswealth.com.