Once you incorporate, you get options for how to pay yourself: salary, dividends, or a mix of both. Each comes with pros and cons, and the right choice depends on your goals, cash flow, and tax situation.

Salary

• Paid as an employee of your corporation.
• Deductible as a business expense, lowering corporate taxable income.
• Provides CPP contributions, building retirement benefits.
• Qualifies you for RRSP contribution room.
• Requires regular payroll filings and remittances.

Dividends

• Paid out of after-tax corporate profits.
• Not deductible for the business, but taxed at a lower personal rate thanks to dividend tax credits.
• No CPP contributions (means more take-home now, but less retirement benefit later).
• Simpler to pay than salary, but requires tracking corporate profits and retained earnings.

The Mix Strategy

Many owners combine the two:

• Salary for predictable income, RRSP room, and CPP contributions.
• Dividends for flexibility and tax efficiency.
  This balance can reduce taxes while keeping cash flow healthy.

Common Mistakes

• Paying only dividends and forgetting about retirement contributions.
• Taking salary without setting aside funds for payroll taxes.
• Switching methods mid-year without proper records.

The Bottom Line

There’s no one-size-fits-all answer. The right approach depends on your income needs, lifestyle, and long-term plans. A bookkeeper or accountant can help find the balance that saves taxes and keeps your business strong.

✅ Pro Tip: Review your compensation strategy every year. Tax rules change, and what worked last year might not be the smartest option this year.

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