Business

What is Owner-manager?

An individual who both owns shares of a private corporation and works actively in the business — eligible for unique tax planning strategies.

An owner-manager is an individual who owns equity in a private corporation (typically a CCPC) and works actively in the business. The term is significant in Canadian tax planning because owner-managers have unique compensation flexibility unavailable to employees or passive investors.

Compensation options

Owner-managers can pay themselves through:

Salary (T4) — deductible to the corporation, taxable to the individual at personal rates, generates RRSP room and CPP contributions
Dividends (T5) — paid from after-tax corporate profits, taxed at preferential rates, no RRSP room or CPP
Bonuses — declared and accrued before fiscal year-end, paid within 180 days
Management fees — paid to a holding company structure
Capital dividends — tax-free distributions from the Capital Dividend Account

Why the mix matters

The right combination depends on:

Provincial tax integration (varies by province)
RRSP room and CPP strategy
Current year vs. carryforward NOLs
Personal cash flow needs
Bank financing requirements
Eventual exit / LCGE qualification

A poorly-structured compensation plan can cost an owner-manager $4K–$22K per year in unnecessary tax.