As our clients are the owner-manager of an incorporated creative small business, we get asked this question at just about every year-end. The answer depends on your personal circumstances and what you want to do with the money from your corporation. To decide whether to pay yourself a salary or dividends, let’s first go over the benefits of both payment methods.


When you pay yourself a salary, the payments are both a corporate expense and personal employment income for you, complete with a T4 slip. The paycheques reduce your corporation’s taxable income, which in turn reduces the corporate taxes owed. The company will withhold source deductions (CPP and Income Tax) from your pay each time you are paid. You will need to register a payroll account with CRA through the corporation.

Why pay a salary?

Paying yourself a predictable salary is an excellent option if you want to earn a steady income and you’ve already put in many years of contributions to the Canada Pension Plan. Advantages may include:

CPP Contributions: Unlike dividends, salary payments allow you to contribute to and eventually collect CPP when you retire. But, in the meantime, it also means that the CPP payments are a cost for you and the corporation. Less cash now, more at retirement. Have you maxed out your previous contributions? Your best 40 years of contributions, or less, go into calculating your CPP.   When you’re self-employed, you pay both portions, almost 11% (10.9%) up to the max each year.

RRSP Contributions: By paying yourself a salary, you can also (continue to?) invest in a Registered Retirement Savings Plan for retirement purposes. Money placed into an RRSP grows tax-free until withdrawal, which is taxed at your then marginal rate. You don’t add more contribution room into your RRSPs with dividend income.

Applying for a Mortgage: Banks love to see a regular and predictable income when you’re trying to qualify for a mortgage. Regular paycheques show a steady income, and chartered banks don’t see dividend income quite as enthusiastically.

Fewer Surprise Tax Bills – When income tax is withheld from each payment and remitted, there are no surprises when you file your personal tax return, as you will have already paid income tax. When paying yourself dividends, no income tax is withheld and remitted, making for large personal taxes in April.


When you pay yourself a dividend, you’re paying yourself as a shareholder of a corporation from the company’s after-tax earnings. A dividend is not a corporate expense and doesn’t reduce the corporate taxes but does come with a dividend tax credit. There are no CPP contributions (as it’s investment income) and it’s not pensionable, but it is taxable. Since you avoid those mandatory retirement contributions, there’s more flexible cash flow for the business. The payment process is also simple since there’s no need to register for payroll and manage regular remittances.

Why pay dividends?

Paying yourself an annual dividend is a great option if retirement is decades away and you haven’t put in many years of contributions to the Canada Pension Plan. Key advantages include:

It’s Easier: If you own the whole corporation, there’s no need to register for payroll and remit source deductions; you can just declare a dividend and transfer money to your personal account.

Flexibility: If you’re a millennial, retirement is very far away. Do you really want to pay into CPP? Maybe you’re an out-of-the-box thinker and would rather take cash out now and manage your own retirement money by investing in real estate? Perhaps you would rather transfer excess money to a holding company through a tax-free dividend? That would give you 100 percent of the money to invest (instead of 50 to 65 percent personally). Properly structured dividends can give you more bang for your buck by deferring the tax and allowing 100 percent to be invested now. A ‘HoldCo’ can help you grow your business empire while providing asset protection, tax savings, and other potential advantages. 

Easier Remittances: Payroll remittances have to be paid every month, and late payments come with harsh penalties. You don’t have to worry about late or missed payroll remittances by paying yourself dividends. You only have to file a T5 once per year.

Still Qualify for Mortgage:  When it comes to mortgage qualifying, you don’t have to go with a chartered bank. You can choose a mortgage broker that has access to many B lenders, such as Mortgage Finance Companies (MFCs), which made up 20% of all insured mortgages in Canada last year. They have Business-for-Self programs to help ensure you have access to a mortgage solution tailored to your situation. Lenders may only use a percentage (maybe 75% or so) of your dividend income, so if you’re planning ahead, remain consistent for at least two years. As a self-employed person, you will need consistent types and amounts of income, so if you paid yourself a dividend last year, do it this year. Paint a picture that you are stable with numbers either staying the same or going up to look like a strong borrower.

Which one pays less tax?

Unfortunately, there are minimal tax savings whether you choose a salary or a dividend. There isn’t a notable difference in the overall tax paid when comparing salary and dividend payments of the same amount. A salary reduces corporate taxes but creates higher personal taxes than dividends. And, dividends don’t reduce corporate taxes, but they do create less personal taxes than a salary. So, do what’s right for you. If you are older and have already paid into CPP and have money to put in an RRSP, then you will probably want to go with a salary.  If you’re young with lots of ambitious and creative investment ideas, you probably will want to go with an annual dividend.

Hopefully, this article has helped you to determine if a salary or a dividend is the best way to pay yourself. Consider your situation on its own merits. No parent or friend will understand your situation as well as you. Do talk to an accountant though, as they can help direct your efforts and avoid paying unnecessary taxes.