CadenceTax & Accounting
Get started

Compensation

Salary or dividends: how to pay yourself from your corporation

Set your salary from the RRSP room you want, take the rest as dividends. The 2026 numbers for your province, the child benefit trap, and the facts that flip it.

By Matthew Reeves, FounderAugust 9, 2026 · 8 min read
Show figures for

Quebec runs its own corporate tax regime through Revenu Québec, and Cadence doesn't currently serve Quebec. The figures below are Ontario's.

Summary

If you own a corporation, you can take money out of it as salary, as dividends, or as a mix of the two. Most articles on the choice open by comparing the personal income tax you’d pay on each. In our view that comparison matters least, because Canada’s tax system is deliberately built so salary and dividends cost you roughly the same in the end. What moves real money is what salary buys and dividends don’t. The first is RRSP contribution room, which is the amount you can put into a registered retirement savings plan each year. You subtract what you put in from your income before your tax is calculated. The second is another year of Canada Pension Plan contributions, which raise the pension you’ll draw later in life. What can cost you real money is the Canada Child Benefit, the monthly payment for children under 18. Payments shrink as the income you report rises. For the money you need to live on, we’d work in this order.

  1. Set the part you take as salary (the salary piece) from the RRSP room you want for next year. Salary earns you room worth 18% of itself and dividends earn none, so to get $20,000 of room, pay yourself about $111,000 of salary.
  2. Take whatever else you need as dividends, which cost much less to administer than salary.
  3. Leave the balance in the corporation, where an Ontario company pays about 11.7% corporate tax for a December 31, 2026 year-end, after a mid-year Ontario rate changea British Columbia company pays about 11% corporate tax for a December 31, 2026 year-endan Alberta company pays about 11% corporate tax for a December 31, 2026 year-enda Saskatchewan company pays about 10% corporate tax for a December 31, 2026 year-enda Manitoba company pays about 9% corporate tax for a December 31, 2026 year-enda New Brunswick company pays about 11.5% corporate tax for a December 31, 2026 year-enda Nova Scotia company pays about 10.5% corporate tax for a December 31, 2026 year-enda Prince Edward Island company pays about 10% corporate tax for a December 31, 2026 year-enda Newfoundland and Labrador company pays about 11% corporate tax for a December 31, 2026 year-end.

Re-run the decision two months before each year-end. Do it sooner if you have young children, or if you’re 65 or over and already drawing your Canada Pension Plan pension.

The routes out of the corporation

Your corporation is a separate taxpayer, so its profit isn’t your money until the corporation pays it out. Salary is pay for work you do for the corporation. The corporation subtracts it from the profit it pays corporate tax on, and you’re taxed on it personally as employment income. A dividend is a share of profit paid to you because you own shares in the corporation. The corporation subtracts nothing for it, because a dividend comes out of profit it has already paid corporate tax on once.

Canada’s system of tax integration is intended to account for corporate tax already paid when the profit reaches you as a dividend. Integration isn’t exact, and the difference depends on your province, income, dividend type and the corporate tax already paid. We’d price both routes from the same amount of company profit before choosing, because comparing the two personal tax rates alone leaves out part of the cost. The rest of this article is about the pension, the RRSP room and the child benefit you can lose.

The third route is to pay yourself nothing and leave the profit in the corporation. On that profit, an Ontario company pays about 11.7% corporate tax for a December 31, 2026 year-end, after a mid-year Ontario rate changea British Columbia company pays about 11% corporate tax for a December 31, 2026 year-endan Alberta company pays about 11% corporate tax for a December 31, 2026 year-enda Saskatchewan company pays about 10% corporate tax for a December 31, 2026 year-enda Manitoba company pays about 9% corporate tax for a December 31, 2026 year-enda New Brunswick company pays about 11.5% corporate tax for a December 31, 2026 year-enda Nova Scotia company pays about 10.5% corporate tax for a December 31, 2026 year-enda Prince Edward Island company pays about 10% corporate tax for a December 31, 2026 year-enda Newfoundland and Labrador company pays about 11% corporate tax for a December 31, 2026 year-end (Quebec attaches extra conditions we don’t cover). That tax splits into a 9% federal small business rate on the first $500,000 a year of active business income in 2026 and each province’s own lower rate under its own limit.1 Active business income means profit from actually running the business, rather than interest the corporation earns on cash it’s sitting on. Leaving profit inside postpones your personal tax rather than cancelling it. You’ll pay that tax whenever the money comes out to you or your estate.

Salary

Only salary creates RRSP room. The salary your corporation pays you in 2026 creates the room you can use in 2027, at 18% of that salary. A year of dividends alone creates none, and you can’t go back afterwards and create it.

Salary also builds your Canada Pension Plan pension, which is the federal pension you pay into out of employment income. Every year you pay in raises the monthly pension you’ll get from about age 65. Paying in at the maximum for most of a working life gets you $1,507.65 a month in 2026 terms.2 Owners take salary for a third reason: mortgage lenders read a T4, the slip your corporation files each February reporting your employment income.

You pay for that pension twice over: the employee half comes out of your pay, the employer half out of the corporation. In 2026 each half is 5.95% of the salary between $3,500 and $74,600, and a second contribution called CPP2 adds 4% of the salary between $74,600 and $85,000.2 An $85,000 salary therefore costs $4,230.45 on the first slice plus $416 on the second. So $4,646.45 comes out of your pay, and the corporation pays the same $4,646.45 again, about $9,293 for the year. The corporation deducts its half against corporate tax. Treat the $9,293 as a price rather than a loss.

The other cost is administration, starting with a payroll account at the Canada Revenue Agency (the CRA). Every time the corporation pays you, it holds back income tax and CPP contributions instead of handing you the full amount. The held-back money goes to the CRA by the 15th of the following month, and a T4 for yourself is due each February. Sending it late ordinarily costs 3% to 10% on the amount above $500, depending on how many days late it arrives.3

Dividends

A dividend skips almost all of that machinery, and for plenty of owners the simplicity is worth more than any tax difference. There’s no payroll account, no monthly payment to the CRA, no pension contribution, and no T4. A dividend also needs a short signed document called a directors’ resolution (i.e. a page you sign yourself, if you happen to be the only director of the company).

The costs of the dividend route arrive later. You get no RRSP room, and no year of pension contributions either. Nothing is held back along the way. Rather than settling up once at filing time, you may have to prepay your own tax during the year in four instalments. Instalments start once the tax still owing when you file (your total personal tax, minus anything already withheld) passes $3,000, in the current year and in either of the two years before it.4 Your corporation also files a T5, the slip reporting dividends paid, by the end of February.

The gross-up, and the child benefit it can cost you

A dividend goes onto your personal tax return at an inflated figure rather than at the cash you received. For the ordinary dividends a small corporation pays, your return shows the cash plus another 15% of it. The CRA calls them non-eligible dividends, because they come out of profit taxed at the low small business rate. Almost certainly that’s what yours are.5 You’re taxed on the inflated figure, but a matching dividend tax credit takes the extra tax back off, so your bill lands roughly where it should. The inflated figure stays on your return, though, and that’s what causes the trouble.

Several government payments are tested against your net income, a subtotal partway down your personal return (line 23600). Net income is neither your taxable income nor the cash you received. Take $100,000 of non-eligible dividends: your bank account receives $100,000, but line 23600 reads $115,000. Salary has no gross-up, so the comparable figure starts at $100,000 before deductions such as the deductible part of CPP.

The Canada Child Benefit falls as adjusted family net income rises, which broadly means the two spouses’ net incomes added together. For payments from July 2026 to June 2027, based on 2025 income, a two-child family loses 13.5% of extra income between $38,237 and $82,847, then 5.7% above that.6 At the example’s income level, the $15,000 gross-up alone therefore costs $855 of annual benefit, before other differences such as deductible CPP contributions. Salary or dividends paid during 2026 affect the following benefit year, so use that year’s thresholds when they’re published.

The mix we’d start from

We generally recommend setting the salary piece at whatever produces the RRSP room you want for next year. Take anything else you need as dividends, and leave the rest in the corporation. No single year can create more than $35,390 of room for 2027, however high the salary goes. Filling next year’s room completely takes $196,611 of 2026 salary.7 Most owners reading this will want a good deal less salary than that. The mix carries every payroll cost above, plus a T5 and maybe instalments. We’d still take it, because RRSP room is the one thing here you can’t buy back later, though two situations change our answer.

  • You have young children and your family net income is above $38,237, where the child benefit starts being reduced. Work the loss out on your own numbers first, because it can beat anything the tax difference gives back.
  • You’re 65 or over and already drawing your CPP retirement pension. Filing form CPT30 with the CRA then stops the CPP contributions on your salary, and leaves the RRSP room your salary creates untouched.2 Below 65 you keep contributing to CPP, even while drawing the pension.

How often this changes

We’d re-run this once a year, about two months before your corporation’s year-end. That timing leaves room to register payroll or change the salary before the year closes. The CPP ceilings, the RRSP dollar limit and the child benefit thresholds all move with inflation every year. A mix set from 2024 numbers is on the wrong inputs by now. Go back to the decision earlier if a mortgage or a refinancing becomes likely within two years, because T4 history can’t be created after the fact.

Closing thoughts

Some of this needs a professional looking at your actual numbers (e.g. a second type of share held by a spouse, which lets the two of you be paid different amounts).

At the end of the day, how you pay yourself is a much smaller lever than how the business is doing. Growth in the corporation’s profit can matter more to your household than fine adjustments to the salary and dividend split.

How we handle it

We run this before your year-end rather than after, on your corporation’s numbers and the RRSP room you have left. Then we set the year: the salary figure, the payroll registration if there isn’t one, and the resolution and T5 for the dividends. The instalments follow from both, and we prepare your personal return and the corporation’s return together so the two agree. A compensation review is included in every service package, at no extra charge.

Footnotes

  1. Canada Revenue Agency, “Corporation tax rates” and the guide to the T2, which is the annual income tax return a corporation files, for the 9% federal small business rate and the federal $500,000 business limit, verified 2026-08-09. Both assume a Canadian-controlled private corporation, which means a private company controlled by Canadian residents, and most owner-run corporations qualify provided the active business profit sits inside the federal and provincial limits. For Ontario: Ontario Ministry of Finance, Corporations Tax: Corporate Income Tax (ontario.ca), corroborated by 2026 Ontario Budget - Annex: Details of Tax Measures (budget.ontario.ca/2026/annex.html) and Bill 97 status page (ola.org). Verified 2026-08-13. The rate reduction is prorated for taxation years straddling July 1, 2026 (Ontario 2026 Budget annex: 'The tax rate reduction would be prorated for taxation years straddling July 1, 2026.'). Enacted by Bill 97, Plan to Protect Ontario Act (Budget Measures), 2026, S.O. 2026, c. 2, which amends s. 31(4) of the Taxation Act, 2007 so the small business deduction rate is 9.3% for days in a taxation year after June 30, 2026 (11.5% general rate minus 9.3% = 2.2%). The combined 11.7% adds the federal 9% small business rate to the Ontario lower rate and is our arithmetic.For British Columbia: Province of British Columbia (Ministry of Finance), Corporate income tax rates – Province of British Columbia. Verified 2026-08-13. Rate of 2% effective April 1, 2017, and a business limit of $500,000 effective January 1, 2010. Budget 2026 (tabled February 17, 2026) announced no corporate income tax rate changes. The combined 11% adds the federal 9% small business rate to the British Columbia lower rate and is our arithmetic.For Alberta: Government of Alberta - Treasury Board and Finance / Tax and Revenue Administration, Tax, levy, and prescribed interest rates. Verified 2026-08-13. The current-rates table on the issuer page lists 2% with effective date July 1, 2020 (the rate has been 2% since 2017, and July 1, 2020 is the current table row). Alberta Budget 2026 (tabled 2026-02-26) made no corporate rate changes. The issuer rate table loaded 2026-08-13 shows no pending 2026 change. The combined 11% adds the federal 9% small business rate to the Alberta lower rate and is our arithmetic.For Saskatchewan: The Income Tax Act, 2000, c I-2.01 (Saskatchewan), King's Printer consolidation, The Income Tax Act, 2000, s. 56(2) - Rates of tax. Verified 2026-08-13. Rate history in s. 56(2): 2% to Sept 30 2020, then 0% Oct 1 2020 - Jun 30 2023, then 1% from Jul 1 2023 with no end date. The 2026-27 budget (tabled March 18, 2026) makes no change: budget.saskatchewan.ca/economy states the budget is "maintaining the small business tax rate at one per cent". The combined 10% adds the federal 9% small business rate to the Saskatchewan lower rate and is our arithmetic.For Manitoba: Manitoba Finance, Corporate Income Taxes - Province of Manitoba. Verified 2026-08-13. Budget 2026 (tabled March 24, 2026, Information Bulletin 126) announced no corporate income tax rate changes, so 0% holds for all of 2026. The combined 9% adds the federal 9% small business rate to the Manitoba lower rate and is our arithmetic.For New Brunswick: New Brunswick Income Tax Act, S.N.B. 2000, c. N-6.001 (official consolidation, laws.gnb.ca), corroborated by NB Department of Finance and Treasury Board corporate tax page, New Brunswick Income Tax Act (consolidated), s.57(1)(a) and s.57(1.025). Verified 2026-08-13. The combined 11.5% adds the federal 9% small business rate to the New Brunswick lower rate and is our arithmetic.For Nova Scotia: Nova Scotia Department of Finance and Treasury Board (novascotia.ca), Corporate income tax rates - Government of Nova Scotia. Verified 2026-08-13. The cut from 2.5% to 1.5% is applied on a days-prorated basis for taxation years straddling April 1, 2025 (NS Income Tax Act s. 40(2) formula, and CRA Schedule 346 Part 3 prorates 2.5% for days before April 1, 2025 and 1.5% after March 31, 2025). Budget 2026-27 (novascotia.ca/budget) keeps the rate at 1.5% - no 2026 change. The combined 10.5% adds the federal 9% small business rate to the Nova Scotia lower rate and is our arithmetic.For Prince Edward Island: PEI Department of Finance and Affordability, and the Income Tax Act, R.S.P.E.I. 1988, Cap. I-1, Provincial Corporate Income Taxes | Government of Prince Edward Island. Verified 2026-08-13. The 1% rate has applied since January 1, 2022 and was left unchanged by the July 1, 2025 package (which changed the general rate and threshold) and by Budget 2026. Statutory basis: Income Tax Act (PEI) s. 37.11.6 (years beginning on or after 2022-01-01 and ending before 2025-07-01) and s. 37.11.7 (years beginning on or after 2025-07-01), factor A = 1.0% in both. The combined 10% adds the federal 9% small business rate to the Prince Edward Island lower rate and is our arithmetic.For Newfoundland and Labrador: Income Tax Act, 2000, SNL 2000 c I-1.1, s. 40(3) (as amended by 2026 c14 s4), announced in Government of Newfoundland and Labrador Budget 2026, Income Tax Act, 2000 (consolidated), House of Assembly of Newfoundland and Labrador, and the Budget 2026 News Release. Verified 2026-08-13. Announced in Budget 2026 (tabled April 29, 2026) retroactive to January 1, 2026, and already enacted: the consolidated statute's s. 40(3) reads 2% with amendment citation 2026 c14 s4. Section 40(4) prorates straddle years by days: 2.5% for days before January 1, 2026 and 2% for days after December 31, 2025. Budget 2026 also announced further cuts to 1.5% on January 1, 2027 and 1% on January 1, 2028, but those steps are NOT yet in the consolidated statute (no 1.5%/1% text found). The Finance department's Corporate Income Tax web page still showed 2.5% when loaded on 2026-08-13 - that page lags the statute. The combined 11% adds the federal 9% small business rate to the Newfoundland and Labrador lower rate and is our arithmetic. For Ontario: Ontario Ministry of Finance, Corporations Tax: Corporate Income Tax (ontario.ca). Verified 2026-08-13. The 2026 Ontario Budget made no change to the business limit - it remains $500,000 (blog reports of an increase to $600,000 are not supported by the Budget annex).For British Columbia: Province of British Columbia (Ministry of Finance), Corporate income tax rates – Province of British Columbia. Verified 2026-08-13.For Alberta: Government of Alberta - Treasury Board and Finance / Tax and Revenue Administration, Tax, levy, and prescribed interest rates. Verified 2026-08-13. AT1 Schedule 1 shows the Alberta Small Business Threshold at $500,000 for periods after March 31, 2009 (base amount $200,000 x 250%).For Saskatchewan: The Income Tax Act, 2000, c I-2.01 (Saskatchewan), King's Printer consolidation, The Income Tax Act, 2000, s. 56.6 - Small business threshold, certain taxation years. Verified 2026-08-13.For Manitoba: Manitoba Finance, Corporate Income Taxes - Province of Manitoba. Verified 2026-08-13.For New Brunswick: New Brunswick Income Tax Act, S.N.B. 2000, c. N-6.001 (official consolidation, laws.gnb.ca), New Brunswick Income Tax Act (consolidated), s.57(2.5). Verified 2026-08-13.For Nova Scotia: Nova Scotia Legislature - Income Tax Act, R.S.N.S. 1989, c. 217, s. 40(6)(d), Income Tax Act (consolidated to April 9, 2026). Verified 2026-08-13. Raised from $500,000 to $700,000 effective April 1, 2025. For straddling taxation years, CRA Schedule 346 applies the $700,000 limit only to the post-March 31, 2025 period (by scaling federal line 428 by 700,000/500,000). Budget 2026-27 keeps the threshold at $700,000 - no 2026 change.For Prince Edward Island: PEI Department of Finance and Affordability, and the Income Tax Act, R.S.P.E.I. 1988, Cap. I-1, s. 37.11.7(2), Provincial Corporate Income Taxes | Government of Prince Edward Island. Verified 2026-08-13. Increased from $500,000 by the 2025-26 budget. Income Tax Act (PEI) s. 37.11.7(3) applies it to taxation years beginning on or after July 1, 2025, and s. 37.11.7(4) splits a year straddling July 1, 2025 into two notional taxation years at June 30/July 1, 2025 with taxable income apportioned by days.For Newfoundland and Labrador: Income Tax Act, 2000, SNL 2000 c I-1.1, s. 40(3), Income Tax Act, 2000 (consolidated), House of Assembly of Newfoundland and Labrador. Verified 2026-08-13. The full statement of the Ontario rate cut, with sources, is on should you incorporate. Quebec has additional qualification tests, including hours counted for the corporation or its associated group and a primary/manufacturing alternative. A majority voting shareholder’s recorded unpaid active work can count too, so paying salary is not itself necessary or sufficient. See Quebec corporate tax for the separate rules, checked 2026-09-25. ↩

  2. Canada Revenue Agency, “CPP contribution rates, maximums and exemptions” and “Second additional CPP contribution (CPP2) rates and maximums”, for 2026. Verified 2026-08-09. The maximum employee and employer contributions are $4,230.45 each on the base contribution and $416 each on CPP2, and the $4,646.45 per side and the $9,293 combined figure are our arithmetic on those tables. The maximum new retirement pension at age 65 is $1,507.65 a month for 2026, from Employment and Social Development Canada’s “Maximum Benefit Amounts and Related Figures”, verified 2026-08-09. On CPT30, see the CRA’s “Canada Pension Plan (CPP) contributions for CPP working beneficiaries”, verified 2026-08-09. Someone aged 60 to 70 who works while drawing the pension has to keep contributing, and the election to stop is open only from 65 to 70. One exemption the body doesn’t cover is Employment Insurance, and most single-owner corporations are exempt from it, because the owner controls more than 40% of the shares that carry votes. Neither you nor the corporation pays EI premiums on your salary, and the flip side is that you can’t normally claim EI benefits. ↩ ↩2 ↩3

  3. Canada Revenue Agency, “Remit (pay) payroll deductions and contributions” and the T4001 Employers’ Guide. Verified 2026-08-09. The income tax and CPP the corporation holds back will average under $25,000 a month for almost every owner. The CRA then puts you on the standard monthly schedule, with payment due by the 15th of the following month. The CRA assigns the schedule, and smaller, longer-established employers with a clean record can be moved to a different one (e.g. quarterly). The full penalty scale sits at Income Tax Act s.227(9)(a). The rate runs 3% at one to three days late, 5% at four or five, 7% at six or seven, and 10% beyond that or if nothing is sent at all. The CRA applies it only to the part of the late amount above $500 unless the failure was knowing or grossly negligent (s.227(9.1)). Separately, under s.227.1(1), if the corporation holds tax back from your pay and then doesn’t send it on, the CRA can pursue you personally for the money. The corporation running out of cash is not by itself an answer, though a director who took real steps to prevent the failure can raise a due-diligence defence under s.227.1(3). ↩

  4. Canada Revenue Agency, “Required tax instalments for individuals”, for the 2026 thresholds, verified 2026-08-09 and stated in full, including the lower threshold for Quebec residents, on our CRA deadlines guide. ↩

  5. Income Tax Act s.82(1)(b) and s.121, verified 2026-08-09, restated as percentages in the Canada Revenue Agency’s T5 guide. On $100 of non-eligible dividend cash, $15 is added on your return, and the federal dividend tax credit is $10.38, being 9/13 of that $15. Large corporations pay eligible dividends instead, grossed up by 38% with a federal credit of 6/11 of the gross-up. Provincial dividend tax credits are set by each province, and aren’t stated here. ↩

  6. Canada Revenue Agency, “Canada child benefit: How much you can get”, verified 2026-08-09, for the payments running from July 2026 to June 2027, which are worked out on your 2025 adjusted family net income. Below $38,237 of income, payments are not reduced at all. Between $38,237 and $82,847 they fall by 7% of the excess for one child, 13.5% for two children, 19% for three and 23% for four or more. Above $82,847 the reduction becomes a fixed amount plus a lower percentage, and for two children it’s $6,022 plus 5.7% of the excess, so the isolated gross-up cost in the body’s example is $15,000 × 5.7% = $855. The $855 is not a complete salary/dividend comparison, because other AFNI adjustments can differ. Re-verified 2026-09-25 against CRA’s current benefit calculation. ↩

  7. Income Tax Act s.146(1), and the Canada Revenue Agency’s “MP, DB, RRSP, DPSP, ALDA, TFSA limits, YMPE and the YAMPE”. That table is the CRA’s annual list of contribution limits for registered savings plans, verified 2026-08-09 for the 2027 dollar limit of $35,390. The $196,611 figure in the body is our arithmetic, being that $35,390 limit divided by 18%. Rental and self-employment income also create RRSP room, so the claim in the body is only that dividends create none. ↩

Questions your situation raises that this guide can't answer?

That's what the fit and fee estimate is for — describe your business, hear back within one business day.
Schedule a fit and fee estimate