IT consultant payroll: should a corporation of one bother with a T4?

The case for salary in a one-person corp

Three things only a T4 salary gives you. First, RRSP room: contribution room accrues at 18% of earned income, and dividends are not earned income — a dividend-only consultant builds zero room every year. Second, CPP: salary keeps you contributing toward an inflation-indexed pension; a corp of one has no other retirement plan attached. Third, PSB insurance: if CRA decides your incorporated contract looks like employment — one client, their hours, their direction — the personal services business rules strip most corporate deductions and the small business rate. Salary paid to you is the deduction that survives, so a salary-heavy pay mix caps the damage of a bad ruling.

The cost side is honest but modest: as owner-manager you fund both the employee and employer halves of CPP, and salary is taxed at full personal rates. Because you control more than 40% of the voting shares, your own salary carries no EI premiums at all.

What dividends still do well

Dividends stay useful as the flexible layer. No remittance calendar, no pay-run software, just a directors' resolution and a T5 in February — handy when a contract ends abruptly or a US client pays late. The pattern we set up most often is a fixed salary that secures RRSP room and CPP, with dividends topping up in strong years. What dividends cannot do is smooth a bench month retroactively or build any room, so a dividends-only structure is a choice to run naked on all three fronts above.

A USD wrinkle specific to this niche: your revenue may arrive in USD from American clients, but payroll runs in CAD. We set the salary in CAD and let the corporation carry the FX exposure — and the invoicing side, W-8BEN-E requests and the no-PE treaty position, lives in our cross-border guide for IT consultants.

A spouse on payroll, done properly

Paying your spouse works when the job is real. Invoicing, bookkeeping handoffs, contract admin, scheduling — legitimate roles in a consultancy. The tests CRA applies are simple: the work actually happens, the wage matches what a stranger would charge, and the money is actually paid on a schedule with a T4 behind it. Keep a short duties list and hours record; a year-end lump labelled admin support is the version that gets disallowed.

Two refinements. TOSI makes dividends to a non-working spouse punitive, and the main escape hatch — an average of 20 working hours a week in the business — is a hard bar to clear in a one-person consultancy, which is exactly why reasonable wages are the better channel. And because a spouse is not at arm's length, their employment may not be insurable for EI: a CPT1 ruling request settles it, and a finding of not-insurable means no EI premiums on either side.

Remitter setup: the lightest machine that stays compliant

Open an RP payroll account under your business number before the first pay run, then pick the lightest cadence CRA allows:

Software follows the same logic. A steady monthly salary suits Wagepoint or QuickBooks Online Payroll on autopilot; a once-a-year December run can be calculated manually and remitted through My Business Account without paying twelve months of software for one payday. Either way the T4 is due by the last day of February, and it has to tie to the salary expense in the T2 — a reconciliation we do as part of year-round bookkeeping so slip season is a formality.

One caution from the contractor world: paying yourself invoiced "consulting fees" from your own corporation instead of salary or dividends is the worst of both — CRA treats it as either salary that skipped withholding or a shareholder benefit. A corp of one has exactly two clean channels; use them.

Source: CRA — Remitting source deductions.