Once you incorporate, you can’t simply take money out of the business. You pay yourself as an employee (salary), as a shareholder (dividends), or a mix of both. Each option has trade-offs.
Paying yourself a salary
- Deductible to the corporation, so it reduces corporate tax.
- Creates RRSP room (18% of earned income, up to the annual limit).
- Builds CPP retirement benefits. Both the corporation and you contribute.
- Requires payroll: source deductions, remittances to the CRA, and a T4 slip each year.
Paying yourself dividends
- Not deductible to the corporation. Profits are taxed inside the company first, then you’re taxed on the dividend personally, with a dividend tax credit to offset the corporate tax already paid.
- Simple to administer: no payroll, just a T5 slip and proper corporate records.
- No RRSP room and no CPP, which means you’ll need to plan for retirement in other ways.
Why many owners use a mix
Canada’s system is designed so the total tax is roughly similar either way, but the details rarely balance perfectly. A mix lets you create enough RRSP room and CPP to support retirement, keep personal income in lower brackets, and leave surplus profit in the corporation at the lower small business rate.
2026 changes worth reviewing
Ontario cut its small business corporate tax rate from 3.2% to 2.2% on July 1, 2026, and the dividend tax credit on non-eligible dividends is scheduled to fall at the start of 2027. Changes like these shift the maths, so it’s worth rerunning your salary-dividend plan this year.
Questions to ask before deciding
- How much do you need personally this year?
- Are you planning to buy a home or apply for a mortgage soon?
- Do you want to build RRSP room and CPP?
- Are there family members involved in the business?
Want a salary-dividend plan built around your numbers? See our plans and pricing or contact Wealth Street Services. We’re in Brampton and serve clients across Canada.
Sources
This article is general information, not tax or financial advice. Rules and amounts change, so confirm details with the Canada Revenue Agency or speak with our team about your situation.
