Salary or Dividends?

Business tip

How owners pay themselves out of a corporation, and what each choice does to your taxes and retirement.

Salary

What it does

Deductible to the corporation, taxed as employment income for you, and requires payroll remittances.

What you get

CPP contributions and RRSP room. If you control more than 40% of the voting shares, your job isn't insurable employment, so no EI premiums. You can opt into EI special benefits through Service Canada.

Dividends

What it does

Paid from after-tax profit, with no payroll, and taxed personally with a dividend tax credit.

What you give up

No RRSP room and no CPP contributions from that income.

The mix

Many owners use both.

A salary big enough to build RRSP room and CPP, with dividends on top, is a common approach. The right split depends on your income and goals.

Taxes

Integration is supposed to even it out.

The system is designed so corporate tax plus personal tax on dividends comes close to the tax on the same income earned personally. Differences remain, so run the numbers for your province.

Retirement

Dividends don't build CPP or RRSP room.

If you take all dividends, you'll need to fund retirement another way. TFSA, taxable investing, or the corporation itself can all play a part.

Best first step

Book an accountant before you choose.

The best split is different for every owner. A single planning session can save more than it costs.

Tickle & Compass

Save this, then compare the structures.

Incorporate or not? →

General information, not tax, legal, or financial advice. Rules vary by province and change — confirm with an accountant.