Accounting for Plumbers: Is it Time to Incorporate?

You did it. You incorporated your business. That’s a massive milestone, so take a second to celebrate! Now for the fun part—actually paying yourself. But as you dig in, you smack right into the classic Canadian entrepreneur’s dilemma. It’s a big one. Do you take a salary, or do you pay yourself in dividends?

Sounds simple, doesn’t it? It’s not. How you get paid is genuinely one of the most critical financial calls you’ll make. This decision ripples through everything—your company’s tax bill, your personal tax return, even how much you can tuck away for retirement. Nail it, and you could save a bundle. Get it wrong? You might just be handing over a chunk of your hard-earned cash to the CRA. Let’s dig in.

The Salary Route: Predictable & Powerful

Going with a salary is the traditional path. You’re basically just an employee of your own company. Your corporation pays you a steady amount, just like any other job. Pretty straightforward.

But don’t mistake straightforward for weak—this method packs a punch. The biggest advantage? Your salary is a business expense. This is huge. Every single dollar you pay yourself in salary directly chops down your corporation’s net income, which means—you guessed it—a smaller corporate tax bill.

And it gets better. Taking a salary generates that precious Registered Retirement Savings Plan (RRSP) contribution room. It’s “earned income,” the magic ingredient that lets you build up a tax-sheltered nest egg. No salary means no new RRSP room. Full stop.

Here’s a quick look at the pros and cons:

  • Pros:
  • Slashes Corporate Taxes: It’s a clean, direct business expense that lowers your company’s taxable income.
  • Fuels Your RRSP: You generate contribution room to save for the future.
  • Builds Your CPP: You’re actively paying into the Canada Pension Plan, which means a government pension waiting for you down the road.
  • Steady & Predictable: It gives you a reliable income stream, which makes personal budgeting a whole lot easier.
  • Cons:
  • The Paperwork: You’re on the hook for payroll. That means withholding and sending tax, CPP, and maybe EI to the CRA on a regular basis. More admin, more deadlines.
  • The Upfront Cost: Those CPP contributions (both your share and the company’s share) are a real cash cost to the business right now.

Diving into the World of Dividends

So, what’s on the other side of the coin? Dividends. They’re a completely different animal. A dividend isn’t a business expense; it’s your company sharing its after-tax profits with its owners (which, hey, is you!).

So why go this route? It often boils down to tax efficiency. Your corporation pays its taxes first, and then it pays you a dividend from what’s left. But here’s the kicker: you get a personal tax break thanks to something called the dividend tax credit. This often means the tax rate you pay on dividends is lower than what you’d pay on the same amount of salary.

Dividends can also feel way simpler. No mandatory CPP payments means more cash in your hand today. No monthly payroll filings means less time spent on admin. Sounds like a dream, right?

Well, hold your horses. It’s not quite that simple.

  • Pros:
  • Potential Personal Tax Savings: That nifty dividend tax credit can seriously lower your personal tax bill.
  • No CPP Drain: You get to skip CPP premiums, which keeps more cash in your business right now.
  • Less Paperwork: Forget about monthly payroll remittances. It’s much simpler administratively.
  • Cons:
  • No Corporate Tax Deduction: Remember, dividends aren’t an expense. They do nothing to lower your company’s tax bill.
  • Zero RRSP Room: This is a big one. Dividends are investment income, so they won’t create a single dollar of new RRSP contribution room.
  • Forgets Future CPP: You save money today, but you aren’t building up any entitlement to Canada Pension Plan benefits for your retirement.

So, What’s the Right Call?

This is where the rubber meets the road. Canada’s tax system has a fancy concept called “integration,” which is a government attempt to make the total tax you pay (both corporate and personal) end up being roughly the same whether you take a salary or a dividend. But “roughly” is doing a lot of heavy lifting in that sentence. Tiny tweaks in federal and provincial tax rates mean one path is almost always slightly better, depending on your specific circumstances.

So, how do you choose? Start by asking yourself some honest questions:

  1. Are you trying to max out your RRSP? If growing that retirement fund is a top priority, you’ll need a salary large enough to create the contribution room you need.
  2. How do you feel about the Canada Pension Plan? Some people see it as a valuable, forced savings plan for retirement. Others would much rather invest that money themselves. There’s no right answer here—only what’s right for you.
  3. What’s your company’s cash flow like? You can only pay dividends out of after-tax profits. A salary, on the other hand, is more flexible and can be paid even if the business isn’t wildly profitable yet.
  4. What does your life outside the business look like? Do you have other income sources? Are you hoping to get a mortgage soon? Lenders definitely love to see a nice, stable salary on an application.

Look, the perfect answer for your business isn’t hiding in a blog post (not even this one!). It’s a strategic call that depends entirely on your corporate profits, your personal financial needs, and what you’re trying to build for the long term. Every single business owner’s situation is different.

The only way to get true clarity is to have a professional crunch the numbers for your exact situation. If you’re ready to stop guessing and figure out if a salary, dividends, or a smart combination of both is your best move, then it’s time to talk. We’d love to help you get it right, so reach out to an accountant on our team and get the personalized advice you need.

Accounting for Plumbers - FAQs

If I incorporate, can I still pay myself easily or does all the money belong to the company?

Yes, you can absolutely pay yourself! While the money technically belongs to the company, you’re the owner, so you call the shots. You can pay yourself a regular salary (which makes you an employee of your own company), pay yourself dividends from the profits, or do a mix of both. Each option has different tax perks, and a good accountant can help you figure out the best strategy for you.

My spouse helps with the books and answering the phone. How does incorporation affect them and our family's finances?

Incorporation can be great for this. It opens up smart ways to do some income splitting. For instance, you could pay your spouse a reasonable salary for the work they actually do, which becomes a handy tax deduction for the business. You could also make them a shareholder, allowing them to receive dividends. The rules here are strict—the pay has to match the work—but it can be a fantastic way to improve your family’s overall tax picture.

Are there specific government grants from CanNor or territorial programs that are only available to incorporated businesses?

Yes, very often. Many of the bigger grants for business development and expansion are specifically designed for formal business structures. While some programs are open to sole proprietors, being incorporated makes you eligible for a much wider range of funding and frankly, makes your application look more solid and professional to the people handing out the money.

What's a realistic all-in cost to set up and maintain a corporation for a small business in the North for the first year?ere

It can vary a bit, but a good budget to have in mind for the first year is somewhere in the $1,500 to $3,500 range. That generally covers the legal and accounting fees to get registered and set up properly, plus the cost for your first corporate tax return. After the first year, the annual costs to keep everything filed and up-to-date are much lower.

I do a lot of work on First Nations' land. Does my business structure impact my ability to get contracts or form partnerships with Indigenous development corporations?

It certainly can. An incorporated business is often seen as more stable, permanent, and professional—a huge plus when you’re bidding for contracts with First Nations governments or looking to partner with their economic development corporations. A formal corporate structure gives you the legal foundation you need for joint ventures and other partnerships, which are incredibly common on major Northern projects.

What can I deduct as a self-employed plumber in BC?

Beyond standard tools and materials, many plumbers miss deductions like protective gear (steel-toed boots, safety glasses), specialized software for scheduling, union dues, and even a portion of your vehicle’s maintenance if it’s used for service calls. We help you track every “hidden” deduction to lower your year-end tax bill. To get a personalized list of deductions for your business, contact our Vancouver office today.

Should I incorporate my plumbing business or stay a sole proprietor?

This is a common question for growing trades. Generally, once your plumbing business is netting more than you need for personal living expenses, incorporating can offer significant tax deferral advantages and limited liability protection. We provide a full cost-benefit analysis to help you decide when to make the switch.

How do I manage GST/PST on plumbing materials and labor?

Navigating sales tax in BC can be tricky for trades. You must charge GST on your labor and materials, but you can also claim Input Tax Credits (ITCs) for the GST you pay on business purchases. We streamline your bookkeeping so your quarterly filings are accurate and painless.