How RRSP Room Is Generated
RRSP contribution room is calculated as 18% of your previous year's earned income, up to the annual maximum ($33,810 for 2026). For incorporated professionals, earned income includes T4 salary and certain other amounts, but critically excludes dividends. This means a professional who pays themselves entirely in dividends generates zero RRSP room.
To maximize RRSP room at the 2026 limit, you need earned income of at least $187,833 ($33,810 ÷ 18%). Many incorporated physicians and dentists pay themselves a salary of approximately $190,000 specifically to generate maximum RRSP room, then take additional compensation as dividends.
Salary vs. Dividends: The RRSP Factor
The salary vs. dividend decision involves multiple trade-offs beyond RRSP room:
| Factor | Salary | Dividends |
|---|---|---|
| RRSP room generation | Yes (18% of salary) | No |
| CPP contributions | Required (employee + employer portions) | Not required |
| Corporate tax deduction | Yes (reduces corporate income) | No (paid from after-tax retained earnings) |
| Personal tax treatment | Taxed as employment income | Eligible for dividend tax credit |
| Integration | Immediate personal tax | Corporate tax + personal tax on dividend |
The Passive Income Rules and RRSP Planning
Since 2019, the small business deduction (which provides the low ~12.2% corporate tax rate on the first $500,000 of active business income) is reduced when a corporation's passive investment income exceeds $50,000. The deduction is fully eliminated at $150,000 of passive income. This means corporate investments above a certain threshold face significantly higher effective tax rates.
This rule creates a strong incentive to extract funds from the corporation for personal investment — including RRSP contributions — rather than accumulating large corporate investment portfolios. For professionals with corporate passive income approaching $50,000, maximizing RRSP contributions (which shelters investment income from the passive income calculation) becomes even more valuable. Coordinate this with your corporate surplus management strategy.
Optimal Strategy by Career Stage
Early Career (Years 1-10)
Focus on paying sufficient salary to maximize RRSP room. The immediate tax deduction at high marginal rates combined with decades of tax-deferred compounding creates enormous value. Simultaneously maximize your TFSA with after-tax dollars.
Mid-Career (Years 10-25)
Continue maximizing RRSP while monitoring corporate passive income levels. If passive income approaches $50,000, consider accelerating personal account contributions. Begin planning for the transition to retirement and eventual RRSP-to-RRIF conversion.
Pre-Retirement (Final 5-10 Years)
Consider whether continued RRSP contributions still make sense given your expected RRIF withdrawal rates and retirement income. For some professionals with large RRSPs, pension income, and corporate assets, stopping RRSP contributions and focusing on TFSA and corporate investments may produce better after-tax outcomes.