Does my Ontario corporation need a formal board resolution to pay dividends?

Yes. Under Ontario corporate law and the Canada Business Corporations Act, dividends are declared by the board of directors. Paying a dividend without a proper board resolution means it is not legally declared and could be characterized by the CRA as a shareholder loan, a benefit, or an improperly characterized payment — any of which can trigger unexpected tax consequences.

The resolution does not need to be elaborate. A signed directors' resolution specifying the class of shares, the dollar amount per share or total amount, and the payment date is sufficient for most small corporations with a single director who is also the sole shareholder. The resolution should be dated and signed before or on the date of payment, not reconstructed weeks later.

Maintain a minute book with all dividend resolutions and cross-reference them to the corporate bank account records showing the actual transfer. If you are paying T5 slips at year end, the resolutions and payment records must match. Loose corporate governance in a small corporation is common but creates risk on an audit — organized records are the cheapest insurance you can carry.