# Salary vs dividends in Canada: how to pay yourself from your corporation

Salary or dividends from your own Canadian corporation: what changes for CPP, RRSP room, EI, paperwork and family members, with a worked example. The plain trade-offs, without tax-rate guesses.

Published: 2026-10-04 · Spark

---

{/* Sources, checked October 2026:
    Dividends are a return on investment, not pay for services; no CPP/EI withheld:
      https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/calculating-deductions/determining-tax-treatment/shareholder.html
    CPP 2026 (employee 5.95%, max $4,230.45): https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/payroll-deductions-contributions/canada-pension-plan-cpp/cpp-contribution-rates-maximums-exemptions.html
    CPP2 2026 (4%, $74,600 to $85,000, max $416 each): https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/calculating-deductions/making-deductions/second-additional-cpp-contribution-rates-maximums.html
    RRSP: 18% of prior-year earned income, 2026 limit $33,810; dividends not earned income (T4040 chart 3):
      https://www.canada.ca/en/revenue-agency/services/tax/registered-plans-administrators/pspa/mp-rrsp-dpsp-tfsa-limits-ympe.html
      https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4040/rrsps-other-registered-plans-retirement.html
    EI: >40% voting shares not insurable: https://www.canada.ca/en/revenue-agency/services/tax/canada-pension-plan-cpp-employment-insurance-ei-rulings/employee-self-employed/determine-employment-pensionable-insurable.html
    Dividend gross-up 15% / federal DTC 9.0301% (non-eligible): https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-40425-federal-dividend-tax-credit.html
    T5 due last day of February: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/completing-slips-summaries/financial-slips-summaries/return-investment-income-t5/t5-information-return/date.html
    TOSI (top marginal rate): https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/federal-government-budgets/income-sprinkling/guidance-split-income-rules-adults.html */}

If you own a corporation, you can pay yourself a **salary**, **dividends**, or a mix. A salary is a business expense for the corporation, comes with CPP contributions and gives you RRSP room. Dividends are paid out of the corporation's after-tax profit, come with no CPP and give you no RRSP room. Neither is always cheaper. The right mix depends on your income, your province, your plans for retirement and how much you leave in the company, and your accountant can run the numbers for your situation.

This guide sets out what changes between the two, so you know what to ask. It doesn't quote tax rates, because the combined result depends on your province and your income, and a rate in a generic article is more likely to mislead you than help.

## The differences at a glance

<table className="mt-6 w-full text-left text-[14px]">
  <thead>
    <tr className="border-b border-border text-fg">
      <th className="py-2 pr-4 font-medium"></th>
      <th className="py-2 pr-4 font-medium">Salary</th>
      <th className="py-2 font-medium">Dividends</th>
    </tr>
  </thead>
  <tbody>
    <tr className="border-b border-border"><td className="py-2 pr-4">Deductible for the corporation?</td><td className="py-2 pr-4">Yes, like any employee's pay</td><td className="py-2">No. Paid from profit after corporate tax</td></tr>
    <tr className="border-b border-border"><td className="py-2 pr-4">CPP</td><td className="py-2 pr-4">Yes. You and the corporation each pay</td><td className="py-2">None</td></tr>
    <tr className="border-b border-border"><td className="py-2 pr-4">EI</td><td className="py-2 pr-4">Not if you control more than 40% of the voting shares</td><td className="py-2">None</td></tr>
    <tr className="border-b border-border"><td className="py-2 pr-4">Creates RRSP room?</td><td className="py-2 pr-4">Yes, 18% of it, up to the yearly limit</td><td className="py-2">No</td></tr>
    <tr className="border-b border-border"><td className="py-2 pr-4">Tax taken off as you go?</td><td className="py-2 pr-4">Yes, through payroll</td><td className="py-2">No. You may need instalments</td></tr>
    <tr className="border-b border-border"><td className="py-2 pr-4">Slip</td><td className="py-2 pr-4">T4</td><td className="py-2">T5</td></tr>
    <tr className="border-b border-border"><td className="py-2 pr-4">Paperwork</td><td className="py-2 pr-4">A payroll account and regular remittances</td><td className="py-2">A directors' resolution and one T5 a year</td></tr>
    <tr className="border-b border-border"><td className="py-2 pr-4">On your personal return</td><td className="py-2 pr-4">Employment income</td><td className="py-2">Grossed up, then reduced by the dividend tax credit</td></tr>
  </tbody>
</table>

## Salary

A salary works like any other job. The corporation runs payroll, takes off income tax and CPP, sends those to the CRA with its own share of CPP, and gives you a T4 at the end of the year.

**CPP.** For 2026, the [employee rate is 5.95%](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/payroll-deductions-contributions/canada-pension-plan-cpp/cpp-contribution-rates-maximums-exemptions.html) of pay between $3,500 and $74,600, up to $4,230.45, and the corporation pays the same again. Above $74,600, [CPP2 adds 4% each](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/calculating-deductions/making-deductions/second-additional-cpp-contribution-rates-maximums.html), up to $85,000. Because you own the corporation, both halves come out of money that's ultimately yours. In return, you build a CPP pension.

**EI.** If you control more than 40% of the corporation's voting shares, your employment [isn't insurable](https://www.canada.ca/en/revenue-agency/services/tax/canada-pension-plan-cpp-employment-insurance-ei-rulings/employee-self-employed/determine-employment-pensionable-insurable.html), so EI premiums don't apply to your salary. Tell whoever runs your payroll, so EI isn't deducted by mistake.

**RRSP room.** Your RRSP deduction limit is 18% of last year's **earned income**, up to a yearly cap, which is [$33,810 for 2026](https://www.canada.ca/en/revenue-agency/services/tax/registered-plans-administrators/pspa/mp-rrsp-dpsp-tfsa-limits-ympe.html). Salary is earned income. Dividends aren't, as the CRA's [RRSP guide](https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4040/rrsps-other-registered-plans-retirement.html) lists it.

**Steady tax.** Because tax comes off each pay, there's no large bill in April.

**The cost** is the payroll work: a payroll account with the CRA, remittances on schedule, T4 slips by the end of February, and the corporation's half of CPP.

## Dividends

A dividend is a payment to shareholders out of the corporation's profit after it has paid corporate tax. The CRA describes dividends as ["a return on the shareholder's investment in the company"](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/calculating-deductions/determining-tax-treatment/shareholder.html), not pay for work, and nothing is withheld from them: no income tax, no CPP, no EI.

**On your return**, a dividend is "grossed up" and then a dividend tax credit is subtracted. The gross-up and credit are there because the corporation has already paid tax on that profit. For most small-business dividends (called "other than eligible" dividends), the CRA's [line 40425 page](https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-40425-federal-dividend-tax-credit.html) sets the gross-up at 15% and the federal credit at 9.0301% of the grossed-up amount. Provinces have their own credits on top.

**No CPP**, which means more cash in your hand this year and a smaller CPP pension later.

**No RRSP room.** If you rely on an RRSP for retirement, an all-dividend plan stops it growing.

**Simpler paperwork.** The directors (often just you) pass a resolution declaring the dividend, the corporation pays it, and it files a T5 slip and summary by [the last day of February](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/completing-slips-summaries/financial-slips-summaries/return-investment-income-t5/t5-information-return/date.html).

**Tax isn't taken off.** The tax on your dividends is due when you file, and if it's large enough you'll be asked for [instalments](/guides/tax-instalments-self-employed-canada).

## A worked example

An owner of an Ontario consulting corporation wants to take **$80,000** out of the company in 2026. Here's what changes, without the income tax, which her accountant will work out:

**As salary**

- Her CPP: ($74,600 − $3,500) × 5.95% = **$4,230.45**, plus CPP2 of ($80,000 − $74,600) × 4% = **$216.00**
- The corporation's CPP: the same, **$4,446.45**
- Total CPP going into her pension: **$8,892.90**
- No EI, because she owns all the voting shares
- RRSP room created for 2027: 18% × $80,000 = **$14,400**
- The corporation deducts $80,000 plus its $4,446.45 of CPP as expenses
- Income tax comes off each pay, so her April bill should be small

**As dividends**

- CPP: **$0**
- RRSP room created: **$0**
- On her return, the $80,000 is grossed up by 15% to a taxable amount of **$92,000**, and the federal dividend tax credit is 9.0301% × $92,000 = **$8,307.69**, plus Ontario's own credit
- The corporation gets no deduction. It pays the dividends out of profit it has already paid corporate tax on
- No tax taken off as she goes, so she'll likely owe a lump sum and be asked for instalments

That's the full set of trade-offs. Whether the total tax is lower one way or the other depends on the corporate tax rate the company pays, her province and her other income. That's the calculation to ask her accountant for.

## Things that often tip the decision

- **You want an RRSP or a CPP pension.** That leans toward at least some salary.
- **You want to keep it simple** and don't have other employees on payroll. Dividends need less paperwork.
- **You're applying for a mortgage or a personal loan.** Lenders look at personal income, and they read T4 and T5 income differently. Ask your lender before year-end, not after.
- **You're paying family members.** Dividends paid to a spouse or adult children who don't work in the business can be caught by the [tax on split income](https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/federal-government-budgets/income-sprinkling/guidance-split-income-rules-adults.html), which taxes them at the top marginal rate. A reasonable salary for real work is treated differently. This is a rule to get advice on.
- **You're leaving money in the corporation.** What you don't pay out stays in the company, taxed at the corporate rate, and can be paid out in a later year.

Many owners end up with a mix: enough salary to reach a CPP or RRSP target, and dividends for the rest.

## The bookkeeping either way

Whichever you choose, money you take out has to be recorded as one or the other. Money you move to yourself during the year with no payroll and no dividend resolution sits in the **shareholder loan** account until your accountant decides what it was. [Business vs personal expenses](/guides/business-vs-personal-expenses) explains how that account works and why it shouldn't be left owing to the company at year-end.

Practical habits:

- Decide the plan with your accountant **before** the year starts, or at least by mid-year.
- If it's salary, put yourself on payroll and remit on time. Late remittances carry penalties.
- If it's dividends, keep the directors' resolution with the corporation's records, and keep transfers to yourself in the shareholder loan account until the dividend is declared.
- Don't take money out of the business account for personal spending and call it "expenses". It's pay, one way or the other.

## Where Spark Books helps

[Spark Books](/books) can be set up for a corporation, and personal spending it spots on your uploaded statements goes to the shareholder loan account, not to expenses. That keeps a running total of what you've taken out, so you and your accountant can decide how much is salary and how much is dividends with real numbers. Spark doesn't run payroll, so a salary still needs a payroll service, and it doesn't prepare T4 or T5 slips. It's free, with no card.