Salary vs dividends in a Canadian corporation
How to pay yourself from your corporation, and when salary, dividends, or a mix makes sense.
Published June 18, 2026 · 7 min read
The most common question an incorporated owner asks is whether to pay themselves a salary or dividends. There is no single right answer. Salary is deductible to the corporation and builds RRSP room and CPP; dividends are simpler, skip CPP, and can be timed; most owners use a mix. Here is how each option actually works and the trade-offs that decide the split. Model the numbers with your accountant before you set your own compensation.
Salary: deductible, builds RRSP and CPP
A salary is a deductible expense to your corporation, so it lowers corporate tax, and it is taxed to you as employment income. Its two big advantages are that it creates RRSP contribution room (18% of earned income, up to the annual limit) and that it counts toward CPP. The catch is that you must run payroll, withhold and remit source deductions on a schedule, and pay both the employee and employer halves of CPP because you are both.
Dividends: simpler, no CPP, but no RRSP room
A dividend is paid out of the corporation's after-tax profit. There is no payroll, no source deductions, and no CPP cost, which makes dividends simpler and cheaper to administer. The trade-off is that dividends build no RRSP room and earn no CPP, so you give up forced retirement saving and a future pension in exchange for simplicity and timing flexibility.
Eligible vs non-eligible dividends
Not all dividends are taxed the same. Non-eligible dividends are paid from income that was taxed at the low small-business rate, and they carry a smaller gross-up and dividend tax credit at the personal level. Eligible dividends are paid from income taxed at the general corporate rate, tracked in the corporation's general rate income pool (GRIP), and carry a larger gross-up and credit. Most small CCPCs pay non-eligible dividends because most of their income is taxed at the small-business rate.
The mix most owners land on
Many owners pay enough salary to create the RRSP room they want and to cover their regular personal cash needs, then top up with dividends. The right split depends on your income level, whether you value RRSP and CPP, your provincial tax rates, and how much administrative work you want. There is no rule of thumb that survives contact with a real tax return, which is why this is worth modelling each year.
What to weigh before you decide
Five things move the decision: RRSP room (salary only), CPP (a cost now, a benefit later), cash-flow timing (dividends can be declared when it suits you), your provincial rates, and whether you want a larger registered pension like an Individual Pension Plan, which is based on salary. Run the comparison with your accountant, because the answer changes with your income and your province.
Deductly does not set your compensation, but the Small Business Deduction that makes the low corporate rate possible is one of the programs we track and rank for you. Knowing your rate is the starting point for the salary-versus-dividend math. Confirm the split with your accountant.