If you own an incorporated business, you generally have a choice in how you pay yourself: salary, dividends, or some combination of the two. There's no single answer that fits every business owner — the right mix depends on your personal and corporate circumstances.
Salary
Paying yourself salary:
- Creates RRSP contribution room
- Counts as a deductible expense for the corporation
- Is subject to source deductions (CPP, income tax withholding)
- Contributes to CPP benefits later in life
Dividends
Paying yourself dividends:
- Are not a deductible corporate expense
- Are not subject to payroll source deductions or CPP contributions
- Are taxed personally at different rates than employment income
- Don't create RRSP room on their own
Why it depends on your situation
The right balance depends on factors like your personal cash flow needs, whether you want to build RRSP room, your corporation's income level, and your long-term retirement and estate planning goals. Some owners use a mix — enough salary to build meaningful RRSP room, with dividends layered on top.
There's no universally "better" answer, and rules of thumb can lead you astray if they don't account for your specific numbers. This is exactly the kind of decision worth reviewing with an accountant who can look at your personal and corporate tax situation together.
This article is general educational information and not personalized tax advice — the right compensation mix depends on your specific circumstances. See our Corporate Tax page or book a consultation to work through your numbers.