One of the most common questions incorporated owners ask: “Should I pay myself salary or dividends?” The answer requires running the numbers — but here’s a clear breakdown of what’s at stake.
Key Advantages of Salary
- RRSP contribution room — Salary generates earned income; dividends do not
- CPP contributions — Builds CPP retirement benefits
- Deductible to the corporation — Reduces corporate taxable income
- Simpler income verification — Easier for mortgage applications and lending
Key Advantages of Dividends
- No CPP premiums — Saves up to $8,000+ annually (2026)
- Lower effective personal tax rate — The dividend tax credit offsets corporate tax already paid
- Flexibility — Declare at any time in any amount up to retained earnings
The Mixed Approach: Usually Best
Most incorporated owners benefit from a combination:
- Enough salary to maximize RRSP room and cover personal living costs tax-efficiently
- Remainder as dividends to minimize CPP and take advantage of the dividend tax credit
- Leave surplus in the corporation to defer tax at the small business rate
What About TOSI?
The Tax on Split Income rules restrict income splitting through dividends to family members unless genuinely involved in the business. Get specific advice before paying dividends to a spouse or adult children.
The salary vs. dividend decision should be modelled annually. CMP Accounting can run the analysis for your situation.