Retained earnings (RE)

Retained earnings (RE) are the profits that a company chooses to keep for itself rather than distribute to its owners (these payments to owners are called dividends). This reserve grows year after year and is used to finance growth or repay debt.

At a glance

Retained earnings: the portion of profits that the company keeps instead of distributing
These payments to shareholders are called dividends; any amount not paid out remains with the company
This reserve accumulates on the balance sheet (the business’s financial snapshot) year after year
They are used to finance growth, capital expenditures, or debt repayment
NREs do not result in additional taxes: corporate income tax has already been paid on these profits; it is when they are distributed as dividends that the owner is subject to tax

Why it matters

It’s a bit like a business savings account: every year, the business sets aside a portion of its profits for later. Example: Your business makes $80,000 in after-tax profit and pays $20,000 to its owners (dividends); the remaining $60,000 is added to retained earnings. A healthy reserve reassures lenders and gives you room to invest. It also influences your decision on whether to pay yourself a salary or a dividend. These accumulated profits appear in the shareholders’ equity of the balance sheet and have already been subject to corporate income tax: in Quebec, an eligible SME pays approximately 12.2% (combined federal-provincial rate for 2026) on its active business income, as detailed Revenu Québec. Bankeo connects you for free with a vetted accountant or CPA who can help you manage this reserve, and we’re here to support you every step of the way.

Frequently asked questions

What exactly are retained earnings?

This is the portion of profits that your company decides to retain rather than distribute to its owners. This reserve accumulates over the years and can be used for investments or to pay off debt.

Where can you find REPs?

On the balance sheet (a snapshot of what the business owns and owes), in the section belonging to the owners. They represent the profits accumulated since the business’s inception, minus the amount paid out as dividends.

Should you keep the profits or pay them out?

It depends on your needs and your tax situation: it’s a complex calculation. Keeping profits in the company defers personal taxes, whereas taking them out as salary or dividends triggers them immediately. Bankeo connects you, for free, with a verified accountant or CPA who will advise you, at no cost to you, often within 48 hours, and we’ll stay by your side.