Salary or dividends: what each route leaves in your hands, in your province

What each route does to your corporation and to you

Your corporation is a separate taxpayer, so its profit isn’t your money until it pays the profit out to you. Salary is pay for work you do for the corporation, and the corporation subtracts it from the profit it pays corporate tax on. You’re then taxed on that salary personally, as employment income, at the rates of the province you lived in on December 31 (i.e. where you were resident, rather than where the corporation is).

A dividend works the other way around. The corporation subtracts nothing for it, because a dividend is a share of profit the corporation has already paid corporate tax on once. You are taxed on the dividend personally as well, at lower rates than salary bears, and a credit on your return hands back an approximation of the corporate tax already paid.

Both routes therefore end up taxed twice or once by design, and the two designs are built to land in the same place. Accountants call that integration. The calculator prices the whole journey for each route, from the profit in the corporation to the cash in your account, so the comparison is made on the one figure an owner actually cares about.

Why the tax difference is the least useful part of the answer

The table by province, further down this page, shows the gap between taking the whole profit as salary and taking the whole profit as dividends, per $100 of profit paid out, and it prints the gap in two parts. The cash column counts everything that leaves your hands, the CPP a salary carries included. The tax column leaves the CPP out, and in most provinces the tax gap alone is small enough to be beaten by a single decision about anything else in the year.

What moves real money is what salary buys and a dividend doesn’t. Salary creates RRSP contribution room worth 18% of itself, and a year of dividends creates none, which you can’t go back and fix afterwards. Salary also buys another year of Canada Pension Plan contributions, and those raise the pension you draw from about age 65 onwards.

Three variables decide the mix once the tax gap is set aside. The first is the RRSP room you want for next year, which only a salary creates. The second is whether your family’s income sits inside the Canada Child Benefit reduction band, where the gross-up on a dividend costs real benefit money. The third is whether you’re 65 or over and already drawing a CPP pension, because an election to stop contributing (form CPT30 for an employee of your own corporation) takes the CPP cost out of the salary route.

What the pension costs, and what it buys

CPP is charged on salary and on nothing else, so it never touches the dividend route. You pay one half out of your own pay and the corporation pays the other half again, and the corporation deducts its half against corporate tax. The calculator shows both halves separately, and keeps them out of the tax totals, because a contribution buys a pension rather than paying for a government.

The contribution has three parts, and on an employee’s return they land in two places. The base part is a non-refundable credit at line 30800. The first additional part, which is the enhancement phased in from 2019, is a deduction from income at line 22215. A second contribution called CPP2 runs on the slice of salary between the two ceilings, and it is deducted at line 22215 as well.

The practical consequence is that a salary at or above the second ceiling always costs the same CPP, whatever the salary is. Raising a salary from that ceiling to $111,000 buys more RRSP room and no more pension contribution. Owners often assume the cost keeps climbing with the salary, and it doesn’t.

The gross-up, and the income figure your benefits are tested on

A dividend goes onto your personal return at an inflated figure rather than at the cash you received. For the non-eligible dividends a small corporation pays, the return shows the cash plus another 15% of it, and a dividend tax credit then takes the extra tax back off. Your tax bill therefore lands roughly where it should, and the inflated figure stays on the return.

Net income, the subtotal at line 23600, is what several government payments are tested against. The calculator prints it for each route so you can see the difference: $100,000 of dividends puts $115,000 on line 23600, while the same cash paid as salary reaches that line after the deduction for enhanced CPP contributions. The Canada Child Benefit, the Canada Groceries and Essentials Benefit (called the GST/HST credit until July 2026) and the age-related credits all read that line.

Ontario adds a second reason to watch taxable income, because its health premium is charged on taxable income rather than on tax. The premium sits on a dividend as squarely as it sits on a salary, and it rises in steps rather than sliding: in 2026 the steepest of them adds $150 of premium across $600 of taxable income. The calculator shows it inside the Ontario figure and names it separately.

What this calculator leaves out

The arithmetic assumes one owner with no other income, under 65, in one province, drawing from one corporation. Profit above the 2026 small business limit of $500,000 bears the general corporate rate, and the calculator splits it there. Eligible dividends are priced up to the general rate income pool when you say the corporation designates them, from this year’s addition (72% of the profit taxed at the general rate) and any balance you enter; eligible dividends received and investment income, which also move the pool, are left out. Adding a second source of income moves every bracket, and the answer moves with it. Where a spouse holds a second class of share, or where a holding company sits above the operating company, the useful comparison has more than three routes in it and needs a professional looking at your actual numbers.

Four things are deliberately outside the figures. The Canada Child Benefit isn’t modelled, because it turns on family income rather than on yours. Provincial low-income reductions and credits aren’t applied either, and below about $50,000 of net income in 2026 they can be worth more than the whole difference between the routes, so the calculator ranks no route there. Alternative minimum tax is left out as well, and so are the provincial payroll taxes (e.g. the Ontario employer health tax) that several provinces charge an employer above a payroll threshold. The Canada workers benefit is in the figures for one person with no spouse or dependant, since a salary earns up to $1,665 of it in 2026 and a dividend earns none.

Administration is the cost this page cannot put a number on. A salary needs a payroll account, remittances on the schedule the CRA assigns you, and a T4 slip each February. A regular remitter pays by the fifteenth of the following month, while qualifying small employers pay quarterly and larger employers more often. A late-remittance penalty normally applies only to the part over $500; a knowing or grossly negligent failure can make the full amount subject to penalty. A dividend needs a signed resolution and a T5, and it may put you into personal instalments the year after, which is paying your own tax in four prepayments during the year. That difference is measured in hours, and it sits beside a tax gap of a few dollars per $100.

The full argument, including the child benefit arithmetic and the administrative cost of running payroll for one person, sits in the guide this calculator was built from. Salary or dividends covers it, and RRSP or leave it in the corporation covers what the room is worth once you have it.

Three worked examples

To provide an example, take an Ontario corporation with $150,000 of profit to pay out, whose owner wants about $20,000 of RRSP room for next year.

Paying $111,000 of salary costs the corporation another $4,646.45 in employer CPP, which leaves $4,018 of corporate tax and $30,336 of dividends. The owner's personal tax is $34,178 and their own half of CPP another $4,646.45, so $102,511 reaches their hands and $19,980 of RRSP room is created for 2027. Taking the whole $150,000 as salary would leave $102,568, and taking it all as dividends would leave $108,089. For every $100 of profit taken out of the corporation, the all-dividends route leaves $3.68 more in your hands than the all-salary route in Ontario. On tax alone the all-salary route is ahead by $2.52, but it also pays $6.20 of CPP, both halves, which more than cancels that.

Now take the salary that fills next year’s RRSP room completely, which needs a corporation with rather more profit behind it.

A $196,611 salary in Ontario creates $35,390 of room for 2027, which is the whole of the $35,390 limit. The salary costs $4,646.45 of CPP out of the owner's pay and the same again from the corporation, and personal tax on it comes to $64,930. Line 23600 reads $204,362.

The third example sets the salary at the second CPP ceiling, which is where the contribution stops growing.

At $85,000 the owner pays $4,646.45 of CPP and the corporation pays $4,646.45, so the year costs $9,292.90 across both halves. Every dollar of salary above $85,000 adds no further CPP at all. The mix leaves $85,411 in hand and creates $15,300 of room.

Salary versus dividends by province, at the default figures

Each row takes the same $150,000 of corporate profit in 2026, pays the whole of it out one way and then the other, and reports the difference per $100 of profit twice: once in cash, with the CPP a salary carries counted, and once on tax alone. The corporate rate column is the combined federal and provincial small business rate for a December 31, 2026 year-end.

In every row the all-salary route pays $6.20 of CPP per $100, both halves, the same in every province because CPP is federal, and the cash column is the tax column less that CPP. The tax column is the part integration is designed to keep small, and a tax difference of a few dollars per $100 isn’t a reason on its own to pick a route. The provinces at the wider end of that column are the ones where the corporate rate and the dividend tax credit have drifted furthest apart, and the drift moves whenever either of them changes.