If you own an incorporated business in Ontario, you can pay yourself a salary, dividends, or a mix. At the top tax bracket the total tax on small business income is close to the same either way, so the decision usually turns on everything else.
Why the tax is similar
Canada's tax system is designed so that $100 of business income costs about the same in tax whether you earn it personally or earn it through your company and take it out as a dividend. Your company pays corporate tax first, and the dividend tax credit gives you credit for it personally.
What salary gives you
- RRSP room: 18% of your salary, up to the annual limit ($33,810 for 2026; $35,390 for 2027)
- CPP contributions that build a retirement pension (you pay both halves through your company)
- Easier mortgage and loan applications, because income is steady and documented
- A deduction for your company
What dividends give you
- Simpler administration: no payroll remittances
- No CPP contributions, which suits owners who already max out CPP through another job, or who prefer to save on their own
- Flexibility to decide at year-end
Things to watch
- Paying family members: dividends to family members can be taxed at the top rate under the tax on split income (TOSI) rules unless an exclusion applies. Salaries must be reasonable for real work.
- Investing inside the company: more than $50,000 a year of passive investment income reduces your company's access to the small business rate the next year.
- Benefits and clawbacks: dividends are grossed up on your return, which can affect income-tested benefits and OAS.
Most owners do best with a mix that is reviewed every year before year-end, based on how much you need personally, your RRSP plans, and what the company earned.