Business · owner pay
Dividend vs Salary Calculator
How much of your corporation's profit you keep as salary vs dividends, in Ontario, BC or Alberta.
Your corporation
Salary or dividends from your corporation?
A salary is a business expense, so the corporation pays no tax on it, but you and the company both pay CPP. A dividend is paid from profit after the small business tax (12.2% in Ontario, 11% in BC and Alberta), and you then pay less personal tax thanks to the dividend tax credit.
Dividends usually leave more cash today, mostly because they skip CPP contributions (you and the company each pay about 5.95%), but CPP comes back later as a pension. Salary also creates RRSP room (18% of salary), can make childcare costs deductible and helps with mortgage approval. Dividends avoid CPP and payroll filings. Many owners mix both.
This compares paying out all the profit this year, assuming you own enough shares to be exempt from EI. Keeping profit in the corporation and the passive income rules change the picture, so check with an accountant. Compare with the dividend tax calculator or the self-employed tax calculator if you're not incorporated.
Frequently asked questions
Is it better to pay myself salary or dividends in Canada?
Dividends usually leave more cash now, mainly because they skip CPP contributions. Salary builds RRSP room and a CPP pension, which can make up the difference over time. Many owners pay a mix.
What is the small business tax rate in Ontario?
12.2% on the first $500,000 of active business income: 9% federal plus 3.2% Ontario.
Do dividends create RRSP room?
No. Only earned income such as salary creates RRSP contribution room.
Do I pay CPP on dividends?
No. CPP is only paid on salary or self-employment income, which also means dividends don't build your CPP pension.
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