In Canada, the owner of an incorporated business generally pays themselves in one of two ways: a salary or dividends. A salary is employment income. The corporation deducts it, runs payroll, withholds income tax and CPP, and reports it on a T4 slip, and it creates RRSP contribution room and CPP pension credits for you. A dividend is a distribution of after-tax profit to shareholders. The corporation cannot deduct it, there is no payroll and no CPP, it is reported on a T5 slip, and it is taxed personally through the gross-up and dividend tax credit. Many owners use a mix of the two.
The starting point is that the corporation's money is not automatically your money. A corporation is a separate legal person, and to get paid you have to move money out of it deliberately. This guide explains how each method works, what each one means for the corporation and for you, and how the paperwork is handled, so that the conversation with your accountant starts from a solid footing.
Paying yourself a salary
When an owner takes a salary, the corporation is the employer and the owner is its employee. That means the corporation has the same payroll obligations it would have for any other employee. In practice, salary involves the following steps.
- Open a payroll program account. The corporation adds a payroll program account (an RP account) to its CRA business number before the first remittance is due.
- Withhold source deductions. Each time salary is paid, the corporation withholds income tax and the employee's CPP contributions from the gross pay.
- Pay the employer share. The corporation also pays its own employer CPP contribution, equal to the employee's contribution.
- Remit to the CRA. The amounts withheld and the employer share are sent to the CRA on the remittance schedule that applies to the corporation.
- Issue a T4 slip. After the calendar year ends, the corporation files T4 slips and a T4 Summary with the CRA and gives the employee a copy, by the last day of February.
If the corporation does not yet have a business number, that comes first, since the payroll account is added to it. See how to get a CRA business number, or have it handled through the business number service.
From the corporation's side, a salary is a business expense. Reasonable salary paid to an owner who works in the business is deducted in computing the corporation's income, which lowers its corporate tax. From your side, the salary is employment income taxed at your personal marginal rates, the same way any other employee's wages are taxed.
CPP contributions on salary
Salary is pensionable earnings, so CPP contributions apply on both sides. For an owner-manager, both sides come out of the same pocket: the employee share is withheld from your pay and the employer share is paid by your corporation. For 2026, the CRA's published figures are as follows.
| 2026 CPP figure | Amount |
|---|---|
| Year's maximum pensionable earnings (YMPE) | $74,600 |
| Basic exemption | $3,500 |
| Employee and employer contribution rate (each) | 5.95% |
| Maximum employee contribution (same for employer) | $4,230.45 |
| Year's additional maximum pensionable earnings (YAMPE) | $85,000 |
| CPP2 rate on earnings between YMPE and YAMPE (each) | 4% |
| Maximum CPP2 employee contribution (same for employer) | $416 |
These figures change every January, so check the CRA's current tables before running payroll. The contributions are not lost money: they earn credits toward a CPP retirement pension and other CPP benefits, which are based on your contribution history. Dividends do not count as pensionable earnings, so years in which you are paid only by dividends add nothing to your CPP record.
RRSP room comes from salary, not dividends
Your RRSP deduction limit for a year is based on 18% of your earned income for the previous year, up to an annual dollar limit, which the CRA has set at $33,810 for 2026. Earned income includes employment income such as salary. It does not include dividends. An owner who takes only dividends therefore builds no new RRSP contribution room from that income. This is one of the main reasons owners who want to save inside an RRSP choose to take at least some salary.
Paying yourself dividends
A dividend is a distribution of the corporation's profits to its shareholders. It is paid out of income the corporation has already paid tax on, so the corporation does not deduct it. There is no payroll account, no source deductions and no CPP. After the end of the calendar year, the corporation reports the dividends on T5 slips and a T5 Summary, filed with the CRA and given to each recipient by the last day of February.
Corporate law sets conditions on paying dividends. Under both the Canada Business Corporations Act (section 42) and Ontario's Business Corporations Act (subsection 38(3)), a dividend cannot be declared or paid if there are reasonable grounds for believing the corporation would be unable to pay its liabilities as they become due, or that the realizable value of its assets would fall below the total of its liabilities and the stated capital of all classes of shares. The directors declare the dividend, and the declaration is recorded in a resolution.
Dividends are paid on shares, so they depend on the corporation's share structure. Which classes of shares exist, and whether a class can receive dividends separately from the others, is set out in the articles of incorporation. Paying dividends to family members who hold shares raises additional rules, including the tax on split income (TOSI), which is a topic for an accountant.
How dividends are taxed: eligible and non-eligible
Because the corporation has already paid tax on the profits it distributes, dividends are not taxed like salary. Instead, the shareholder reports a grossed-up amount and then claims a dividend tax credit. The gross-up approximates the pre-tax corporate income behind the dividend, and the credit approximates the tax the corporation already paid. There are two types of dividends, and each has its own gross-up.
- Eligible dividends: the taxable amount is 138% of the dividend actually received (a 38% gross-up). These are generally paid out of income taxed at the general corporate rate, and the corporation designates them as eligible when it pays them.
- Other than eligible (non-eligible) dividends: the taxable amount is 115% of the dividend received (a 15% gross-up). Dividends paid by a Canadian-controlled private corporation out of income taxed at the small business rate are generally non-eligible.
- Both types attract a federal dividend tax credit, and each province and territory has its own dividend tax credit as well.
These are the gross-up rates the CRA applies on the current personal return (line 12000). The exact personal tax on a dividend depends on your province, your other income and the type of dividend, so the comparison with salary is always a calculation, never a rule of thumb.
The idea behind integration
Canadian tax is designed around a principle called integration. In theory, a dollar of business income should bear roughly the same total tax whether you earn it personally or earn it through a corporation and pay it out to yourself. Salary achieves this by being deductible: the corporation pays no tax on it and you pay personal tax. Dividends achieve it through the gross-up and credit: the corporation pays corporate tax first, and the credit offsets part of your personal tax.
Integration is not perfect. Depending on the province, the year and the type of income, salary and dividends can produce slightly different totals, which is part of why the decision is worth modelling. Integration also explains why the real advantage of a corporation is often timing: profit left inside the corporation is taxed only at the corporate rate until it is paid out.
Salary vs dividends at a glance
| Factor | Salary | Dividends |
|---|---|---|
| Deductible to the corporation | Yes | No |
| CRA account needed | Payroll program account (RP) | None beyond the corporation's own accounts |
| Source deductions | Income tax and CPP withheld | None |
| CPP contributions | Yes, employee and employer share | No |
| Builds CPP pension credits | Yes | No |
| Creates RRSP contribution room | Yes (earned income) | No |
| Year-end slip | T4 | T5 |
| Personal tax treatment | Employment income at marginal rates | Gross-up and dividend tax credit |
| Corporate law conditions | Employment terms | Solvency test; declared by directors |
| Administration | Regular payroll and remittances | Resolution and annual T5 filing |
Which is better?
There is no universal answer, which is why you see business owners do different things. The relevant factors include how much you need to take home each year, whether you want to build RRSP room and CPP credits, whether the corporation benefits from the deduction, how much profit you intend to leave in the corporation, your province, and your overall income level. Some owners value the CPP pension and the RRSP room that salary brings. Others prefer the simpler administration of dividends and plan for retirement in other ways.
Mixed strategies
Many owners take a mix, often a salary set at a level chosen with their accountant, such as enough to reach a target amount of RRSP room or CPP earnings, and then dividends on top as cash flow and profits allow. Others change the mix from year to year as income rises or falls. A mixed approach means the corporation carries out both sets of formalities: payroll and T4 slips for the salary, and directors' resolutions and T5 slips for the dividends.
A note on shareholder loans
Some owners simply take money out of the corporation's bank account without calling it salary or dividends. In the books, that usually becomes a loan to the shareholder, and the Income Tax Act has a specific rule for it. Under subsection 15(2), a loan from a corporation to a shareholder, or to a person connected with a shareholder, is generally included in the shareholder's income. Subsection 15(2.6) provides an exception where the loan is repaid within one year after the end of the corporation's taxation year in which it was made, and the repayment is not part of a series of loans and repayments.
Other exceptions and related rules, including interest benefit rules, can also apply. A shareholder loan is therefore not a substitute for salary or dividends, and any balance owing to the corporation at year-end is something to review with your accountant before the deadline passes.
Recording salary and dividends in the minute book
Dividends are declared by the directors, and that decision belongs in the corporation's minute book. A dividend resolution typically states the class of shares, the amount per share or the total amount, the record date and the payment date. When the CRA reviews an owner-manager corporation, the minute book is one of the places it can look to confirm that dividends were properly authorized.
Owner salaries and bonuses are also often approved by directors' resolution, particularly when the owner is also a director. Many corporations handle these approvals alongside their annual resolutions, which approve the financial statements and confirm the directors and officers. Korporex prepares Ontario annual resolutions and federal annual resolutions, and can set up an initial minute book for a corporation that does not have one yet.
Where Korporex fits
Paying yourself dividends is only possible because your corporation has a share structure that allows it. Korporex sets up that share structure when it files your incorporation, so the option is there from day one.
Korporex is not an accounting firm and does not give tax advice. The choice between salary, dividends or a mix is one to make with a qualified accountant. For related structures, see holding companies in Canada and sole proprietorship vs corporation.
Frequently asked questions
Is it better to take salary or dividends from my corporation in Canada?+
There is no single answer. Salary is deductible to the corporation and creates RRSP room and CPP credits, but it requires payroll and CPP contributions on both sides. Dividends are simpler to administer and are taxed through the gross-up and dividend tax credit, but they create no RRSP room or CPP credits. The right mix depends on your income, province and goals, so it is a question for your accountant.
Do dividends create RRSP contribution room?+
No. RRSP contribution room is based on 18% of your earned income for the previous year, up to an annual dollar limit ($33,810 for 2026). Earned income includes employment income such as salary, but it does not include dividends. An owner paid only by dividends does not build new RRSP room from that income.
Do I pay CPP on dividends from my corporation?+
No. CPP contributions apply to pensionable earnings such as salary, not to dividends. For 2026, salary attracts CPP at 5.95% from both the employee and the employer on earnings up to $74,600, after a $3,500 basic exemption, plus CPP2 at 4% each on earnings between $74,600 and $85,000. Dividends also add nothing to your CPP record.
What is the difference between eligible and non-eligible dividends?+
Eligible dividends are generally paid out of income taxed at the general corporate rate and are grossed up by 38% on the personal return. Non-eligible dividends, typically paid by a Canadian-controlled private corporation out of income taxed at the small business rate, are grossed up by 15%. Each type has its own federal and provincial dividend tax credit.
Can I just borrow money from my corporation instead?+
A shareholder loan is generally included in the shareholder's income under subsection 15(2) of the Income Tax Act. An exception applies if the loan is repaid within one year after the end of the corporation's taxation year in which it was made and the repayment is not part of a series of loans and repayments. Other rules can also apply, so review any balance with your accountant.
Do dividends need to be recorded in the minute book?+
Dividends are declared by the directors, and that declaration is recorded in a resolution kept in the corporation's minute book. The resolution typically sets out the share class, the amount, the record date and the payment date. Corporate law also prohibits paying a dividend where the corporation would fail the solvency test, so the directors consider that test when they declare it.