How you pay yourself from your corporation is one of the most impactful annual tax decisions you will make. The salary vs. dividend decision affects your RRSP room, CPP benefits, corporate tax rate, personal tax rate, and even your eligibility for certain government benefits. There is no universal "right answer" — the optimal strategy depends on your specific circumstances and changes as your situation evolves.
| Factor | Salary | Dividends |
|---|---|---|
| Creates RRSP room | Yes (18% of earned income) | No |
| CPP contributions | Yes (employer + employee portions) | No |
| Corporate tax deduction | Yes — reduces corporate income | No — paid from after-tax profits |
| Childcare expense deduction | Yes — creates earned income | No |
| Overall tax integration | Slightly higher in most provinces | Slightly lower in most provinces |
| Simplicity | Requires payroll, T4, source deductions | Simpler — board resolution and T5 |
Most business owners benefit from a hybrid approach: enough salary to maximize RRSP room ($191,667 in 2026 for maximum RRSP contribution) and CPP benefits, with additional extraction via eligible dividends. This creates the best of both worlds — retirement savings room, pension benefits, and tax-efficient dividend income.
Your compensation strategy should be reviewed annually with your accountant and coordinated with your tax minimization plan, retirement planning, and IPP considerations. Contact us for a personalized compensation analysis.