Salary vs. dividends for Ontario owners, explained
Incorporated Ontario owners can pay themselves salary, dividends, or a mix, and the best split depends on your situation.
Once you're incorporated, you decide how to pay yourself: salary, dividends, or a combination. Each has trade-offs around CPP, RRSP room, payroll obligations, and how the corporation and you are taxed.
What tips the decision
Salary creates RRSP room and CPP contributions and is deductible to the corporation; dividends skip CPP and payroll but don't build RRSP room. The right mix depends on your income needs, retirement plans, and the corporation's income.
Why it's a yearly question
Tax rules and your own situation change, so last year's answer may not be this year's. It's worth running the numbers each year with your accountant.
This is general information, not tax advice for your situation. Book a call and a Canadian accountant will give you the answer for your business.
Common questions
Is salary or dividends better?
It depends on your income needs, RRSP and CPP goals, and the corporation's income. There's no single right answer, which is why it's worth calculating for your situation.
Can I pay myself both?
Yes. Many owners take a mix of salary and dividends, tuned each year with their accountant.