Do I issue myself a T4 or a T5 as an owner-manager?

It depends entirely on how you paid yourself

The slip follows the payment method, not the other way around. If you took a salary or bonus from your corporation during the year, that income is reported on a T4. If you took a dividend as a shareholder, that is reported on a T5. Many owner-managers do both in the same calendar year: a base salary reported on a T4, plus a dividend top-up reported on a T5, which means issuing yourself both slips is entirely normal rather than a sign something was done incorrectly. For help deciding the mix itself, see salary or dividends from my corporation.

What a T4 requires behind the scenes

Paying yourself a salary means your corporation needs a payroll (RP) account with the CRA, and it needs to remit source deductions, income tax, CPP, and generally EI, on the schedule that applies to its remittance frequency. As an owner-manager, you and the corporation both contribute CPP on your salary, covering the employee and employer portions. If you control more than 40% of the corporation’s voting shares, your employment is generally excluded from EI, which means no EI premiums and, correspondingly, no eligibility to claim EI benefits later.

Cash withdrawn from the corporation that is not documented as salary, dividends, or a repayment of a genuine shareholder loan is at risk of being treated as a shareholder benefit, taxable to you personally without the benefit of either the employment deduction structure of a T4 or the dividend tax credit of a T5. This is one of the more common issues we see in a first CRA review of an owner-managed corporation: draws taken informally throughout the year, with the paperwork sorted out, or not sorted out, only after the fact.

What a T5 requires behind the scenes

A dividend needs a directors’ resolution declaring it, recorded in the corporate minute book, before the T5 slip and summary are prepared. T5 slips are due by the last day of February following the calendar year the dividend was paid, the same general deadline as T4 slips, and the resolution should specify whether the dividend is eligible or non-eligible, since that designation flows onto the slip itself. There is no payroll account, no remittance schedule, and no CPP or EI involved anywhere in the process.

Why “management fees” are not a simple third option

Some owners consider invoicing their own corporation a management fee instead of taking a salary, hoping to sidestep payroll. For an individual doing the actual day-to-day work of the business through their own corporation, this generally does not hold up; if the substance of the relationship is employment, the CRA expects payroll withholding regardless of what the payment is labelled. Management fee arrangements are a legitimate tool between separate related corporations, such as a holding company charging a fee to an operating company for genuine services, but they are not a way for an individual to avoid issuing themselves a T4. A CRA payroll audit that recharacterizes a management fee arrangement as employment income can result in the corporation being assessed for the source deductions it should have withheld, plus interest and penalties, on top of whatever the individual already reported personally.

Choosing when to run payroll during the year

Some owners run payroll only once a year, at year end, declaring a full year’s compensation as a single salary payment; others run it every pay period like a regular employee. Both are valid, but a single year-end payroll run still requires remitting the associated source deductions by the applicable deadline, and waiting until the last possible day of the year to decide on salary versus dividends limits how much planning can actually happen, since a resolution and slip still need to be prepared and filed correctly afterward.

T4A for a different kind of payment

If you also receive payments from your corporation that are not salary and not dividends, such as certain director’s fees or, in specific circumstances, pension or retiring allowance amounts, a T4A rather than a T4 or T5 may be the correct slip. This is less common for a straightforward owner-manager taking salary and dividends, but it is worth knowing that T4 and T5 are not the only two slips a corporation might issue to its owner in a given year, and mislabelling one type of payment as another can create mismatches between what the corporation deducted and what you reported personally.

The bonus accrual timing quirk

A corporation can accrue a bonus at its fiscal year end and still deduct it in that year, provided the bonus is actually paid within 180 days of the year end. The T4 for that bonus is issued for the calendar year in which it is actually paid to you, not the year the corporation accrued and deducted it, which can shift the personal tax timing by several months relative to the corporate deduction. This is a useful planning lever around a non-calendar fiscal year end, but it needs to be tracked carefully so the bonus is both paid on time and reported in the correct calendar year.

How we handle this

We set up and run the payroll account when a salary is chosen, prepare the directors’ resolutions and T5 slips when dividends are declared, and keep bonus accruals inside the 180-day window so the corporate deduction and the personal T4 line up the way they were planned. This sits alongside our payroll services and bookkeeping for owner-managed corporations.