Salary vs. Dividends: How Should You Pay Yourself in Ontario?
Once your business is incorporated, you face a question employees never think about: how do you actually pay yourself? The two main options — salary and dividends — each have real trade-offs, and the “right” answer depends on your goals. Here’s how we think it through with clients.
The quick version of each
Salary is a deductible expense to your corporation and earned income to you. It’s paid through payroll, with source deductions and CPP remitted to the CRA. Dividends are paid out of the corporation’s after-tax profits to you as a shareholder — no payroll, no CPP, and taxed at lower personal rates because the company already paid corporate tax.
Why owners choose salary
Salary creates RRSP contribution room (dividends don’t), builds your CPP entitlement for retirement, and counts as earned income for things like mortgage qualification and childcare deductions. It also lowers the corporation’s taxable income. The trade-off: you (and the company) pay CPP on it, and it’s taxed at full personal rates.
Why owners choose dividends
Dividends are simpler (no payroll to run), avoid CPP contributions, and can allow more tax deferral if you leave profits in the company. The trade-off: no RRSP room, no CPP building, and dividends can complicate things like personal borrowing.
Most owners use a mix
In practice, the best answer is usually a blend, tuned each year to your income needs, your RRSP and CPP goals, and how much profit you want to leave in the company to defer tax. That’s exactly the kind of thing worth reviewing annually — because the optimal split changes as your income and the tax brackets change.
Not sure how to pay yourself this year? We’ll run your numbers and recommend the mix that keeps the most in your pocket. Book a free consult →
General information, not specific tax advice. The right salary/dividend mix depends on your situation — talk to a CPA.
FAQ
Is it better to take salary or dividends in Ontario?
Neither is universally better. Salary builds RRSP room and CPP and is deductible to the company; dividends are simpler and avoid CPP. Most owners use a mix tuned to their goals each year.
Do dividends create RRSP room?
No. Only salary (earned income) creates RRSP contribution room. If building RRSP savings matters to you, that’s a point in favour of paying some salary.
Do I have to pay CPP on dividends?
No — dividends aren’t subject to CPP. That’s a saving now, but it also means you’re not building CPP retirement benefits.
Can I change my salary/dividend mix each year?
Yes, and you should review it annually. The optimal split shifts with your income needs, tax brackets, and how much profit you want to leave in the company.
