Should I Pay Myself a Salary or Dividends in Canada?

Sep 24

5 min read

Updated: Sep 27

Short answer: If your business is incorporated, you can pay yourself a salary, dividends, or a mix. A salary is a business expense for the corporation, builds CPP and RRSP room, and needs a payroll account. Dividends are simpler to pay and are reported on a T5 slip, but they build no CPP or RRSP room. Sole proprietors take draws instead.

Choosing salary or dividends is a decision for your accountant, based on your income and your plans. Your bookkeeper makes sure every payment is recorded the right way, so the T4, the T5 and the year-end numbers all match. A dividend is a payment of the corporation's after-tax profit to its shareholders. A salary is pay for the work you do as an employee of your own corporation.

Salary or dividends in Canada: owner at a desk between a payslip and T4 slip and a dividend payment and T5 slip

What is the difference between a salary and a dividend?

A salary is paid for work and goes through payroll. A dividend is paid because you own shares, and it comes out of profit the corporation has already paid tax on.

	Salary	Dividend
Why it is paid	For your work as an employee	Because you own shares
Deductible for the corporation?	Yes	No, paid from after-tax profit
Payroll account and monthly remittances	Yes	No
CPP contributions	Yes, employee and employer share	No
Builds RRSP room	Yes	No
Slip you receive	T4	T5
Slip due to the CRA	Last day of February	Last day of February

Can a sole proprietor pay themselves a salary?

No. A sole proprietor and the business are the same person for tax purposes. The CRA says salaries or drawings paid to you or your partners are not deductible on Form T2125.

The money you take out is called a draw. It does not change your tax. You pay income tax, and both halves of CPP, on the business's net profit on your personal return, whether you took the money out or left it in the bank.

Salary and dividends only become a choice once you incorporate.

How do CPP and EI work with salary and dividends?

A salary is pensionable, so CPP is deducted. Dividends are not, so no CPP is paid on them and they do not count toward your CPP pension.

CPP. On a salary, the corporation deducts your CPP and also pays a matching employer amount. As the owner, you fund both halves. In return, you build a CPP retirement pension.
EI. If you control more than 40% of the voting shares of your corporation, your employment is not insurable for EI. That means no EI premiums on your salary, and no regular EI benefits. You can opt in to EI special benefits (such as maternity or sickness) as a self-employed person.
Dividends. No CPP, no EI, no payroll deductions of any kind.

Our payroll guide for small businesses explains how source deductions and remittances work.

How do salary and dividends affect RRSP contribution room?

Salary builds RRSP room. Dividends do not.

Your RRSP deduction limit is 18% of your earned income from the previous year, up to a yearly maximum. As of 2026, the maximum is $33,810. Earned income is mainly employment and self-employment income. Dividends are investment income, so they are not part of it.

An owner who takes only dividends for many years has little or no new RRSP room. For some owners that is fine. For others it matters a lot. It is a question to raise with your accountant.

Are dividends taxed less than salary?

Not always. Dividends often look cheaper because no CPP is taken off, but the corporation has already paid tax on that profit.

The tax system tries to balance this. When you receive a dividend from a Canadian corporation, you report a grossed-up amount and then claim a dividend tax credit for part of the tax the corporation already paid. Dividends from most small business profit are "other than eligible" dividends, grossed up by 15%.

The result depends on your province, your total income and how much profit the corporation earns. To see your own numbers, try our free 2026 Canadian Income Tax Calculator (it handles salary, dividends, CPP and EI) and the 2026 Corporate Tax Calculator. Then take the results to your accountant.

What do I have to file for a salary, and for a dividend?

A salary needs a payroll account and monthly remittances. A dividend needs one slip a year.

If you pay yourself a salary:

Payroll account. Open a payroll (RP) program account with the CRA.
Each pay. Deduct income tax and CPP (and EI if you are insurable).
Remit. Send the deductions and the employer CPP to the CRA, usually by the 15th of the next month.
T4. File the T4 slip and T4 Summary by the last day of February.

If you pay yourself a dividend:

Approve it. The directors approve the dividend. The resolution goes in the corporate minute book.
Pay it. Transfer the money from the business account.
T5. File the T5 slip and T5 Summary by the last day of February following the year it was paid.

We prepare both T4 and T5 slips for our clients, and we record every payment so the slips match the books.

Can I pay myself a mix of salary and dividends?

Yes. Many owner-managers do. A common pattern is a salary high enough to build CPP and RRSP room, with dividends on top when profit allows.

Keep these points in mind:

Pick the mix with your accountant before the year ends. Salary has to go through payroll, with deductions remitted on time.
Money you take out that is neither salary nor a declared dividend goes to your shareholder loan account. That account needs attention at year-end. See our year-end checklist.

With Remote Bookkeeping, you build your own plan and pay only for what you need, whether that is bookkeeping alone or bookkeeping with payroll. Our prices are published on the pricing page and are the same across Canada. See what each service includes.

Frequently asked questions

Do I need a payroll account to pay myself?

Only if you pay yourself a salary. Dividends do not go through payroll, so no payroll account is needed if dividends are all you take.

Do I have to take a fixed salary?

No. You can pay yourself a regular amount each pay period, or a bonus later in the year. Both go through payroll and appear on your T4.

Do I need a resolution to pay a dividend?

Yes. The directors approve a dividend by resolution, and it is kept in the corporate minute book. Your lawyer or accountant usually prepares it.

How are dividends recorded in the books?

A dividend is not an expense. It is recorded against retained earnings, and the payment comes out of the bank or is credited to your shareholder loan account. It does not reduce the corporation's profit.

Sources

About Remote Bookkeeping

Remote Bookkeeping is a Canadian-owned firm founded by Lia and George, with more than 30 years of combined experience. We provide monthly bookkeeping, financial reporting, payroll, HST/GST filing, year-end preparation and QuickBooks Online setup for small businesses across Canada. Call (289) 867-0808 or 1-800-880-9141, or contact us. Related reading: How Does Payroll Work for a Small Business in Canada?

This article is general information for Canadian small business owners. It is not tax, legal or accounting advice for your particular situation. Rates and thresholds change - always confirm against the source linked above or ask us.