Should I pay myself a salary or dividends from my corporation?

How are salary and dividends taxed differently?

Money your company earns is taxed once inside the company, and again on your personal return when you take it out. Most of the time, the two layers together come to roughly what you would have paid without a company.

A salary is an expense the company can deduct, so it lowers the company's tax. You pay full personal tax on it. A dividend is not deductible to the company. But it is taxed more gently to you, because the company already paid tax on that money.

What does a salary give you that dividends do not?

A salary from your own company builds retirement room and the contributory government pension. Dividends build neither. Salary also gives you a record of personal income that lenders like to see.

A young owner saving for a first home may lean toward salary. An established owner with ample retirement savings may lean toward dividends.

Paying a salary makes your company an employer. It must take off income tax, pension contributions and, where they apply, employment insurance premiums. For most small employers these are sent in by the 15th of the following month. Directors can be held personally responsible if they are not.

Which dividend, from which account?

There are two kinds of ordinary dividends. Profit taxed at the company's higher rate can usually pay the kind taxed more gently. Profit taxed at the small business rate pays the kind with heavier personal tax.

Your company may also keep special tax accounts:

• A capital dividend account, which can be paid out to you tax-free. Confirm the balance and file the election at or before the payment.
• Refundable tax on investment income, which the company gets back when it pays you taxable dividends.
• Each dividend is approved by director resolution before it is paid.

Should I take everything out now?

Not necessarily. Money you leave inside the company has only been taxed at the first, lower gate, so the second layer is deferred. But too much investment income inside the company can take away its low small business rate.

A single giant withdrawal can spike you into the highest personal rates. Spreading the same amount across several years can keep far more of it. Review the mix each year, a few months before year-end.

Try the salary vs dividend calculator

The TaxOnTax salary vs dividend calculator at /tools/#salary-dividend shows how the two compare. It is an educational illustration, not personal advice. Bring your real numbers to your adviser before you set this year's mix.

Related questions

Do dividends count toward CPP or RRSP room?

No. A salary from your own company builds retirement room and the contributory government pension; dividends build neither.

Can I borrow from my corporation instead of paying myself?

For short periods. Repay a shareholder loan within one year after the end of the company's tax year in which it was made. Otherwise the whole amount can be taxed as your income.

Can I pay dividends to my spouse or adult children?

Only with care. The tax on split income rules have tightened this. Family members generally must be actively involved in the business, or hold the right kind of ownership, first.

Drawn from TaxOnTax: The 12Event Planning Model (second edition), Event 7: Getting the Money Out (see also Event 5: Two Taxpayers, One Owner), by Derik Godbout, PBA, CEA, DMA. Reviewed October 2026. General information, not advice for your situation; rules and amounts change, so confirm current figures before you act.

Go deeper: Event 7: Corporate Surplus, Dividends & Shareholder Income

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