HOW MUCH TO PAY YOURSELF
MD PRACTICE | RUNNING A PRACTICE SERIES
LAST UPDATED: APRIL 12, 2021
LAST UPDATED: APRIL 12, 2021
The goal is to keep as much money within your corporation as possible in order to invest it. You only want to pay yourself as much as you need to cover your own personal expenses. For example, if you only need $100,000 a year to cover your lifestyle spending, you would need to take out approximately $150,000 from your corporation each year (~$50,000 of this will be lost in federal and provincial taxes). The remainder stays within the corporation for investment.
However, one caveat is paying yourself enough to maximize your RRSP contribution limit. The Canada Revenue Agency (CRA) lists the maximum contribution limit each year, and it can be no more than 18% of your annual earned income from the previous year.
For example, the maximum allowable contribution limit in 2021 is $27,830. This means that if you paid yourself $100,000 in 2020, your contribution limit would only be $18,000 (18%) for 2021, even though the maximum contribution limit allowable by CRA is $27,830. This is not effectively maximizing your contribution limit. Conversely, if you paid yourself $200,000 in 2020, even though 18% of this is $36,000, your maximum contribution in 2021 would be limited to $27,830.
This is the reason that many physicians pay themselves near the $150,000 range each year, as this maximizes their RRSP contribution limit ($27,000).
However, one caveat is paying yourself enough to maximize your RRSP contribution limit. The Canada Revenue Agency (CRA) lists the maximum contribution limit each year, and it can be no more than 18% of your annual earned income from the previous year.
For example, the maximum allowable contribution limit in 2021 is $27,830. This means that if you paid yourself $100,000 in 2020, your contribution limit would only be $18,000 (18%) for 2021, even though the maximum contribution limit allowable by CRA is $27,830. This is not effectively maximizing your contribution limit. Conversely, if you paid yourself $200,000 in 2020, even though 18% of this is $36,000, your maximum contribution in 2021 would be limited to $27,830.
This is the reason that many physicians pay themselves near the $150,000 range each year, as this maximizes their RRSP contribution limit ($27,000).