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Most incorporated business owners eventually arrive at the same question.
“Should I pay myself a salary or dividends?”
It sounds straightforward. In practice, it rarely is.
The way you pull money out of your corporation affects much more than your tax return for the year. It influences how much you can shelter in an RRSP, what your CPP pension might look like later in life, and how flexible your overall retirement plan becomes.
That is why, for many owners in 2026, the real opportunity is not choosing one or the other. It is choosing when and how to combine both.
Canada’s tax system tries to keep things reasonably balanced between salary and dividends. The concept is called tax integration. In theory, the total tax paid on corporate income should be roughly similar whether you earn it personally or through a corporation and then withdraw it. ¹
But “roughly similar” does not mean “identical,” and it does not mean the outcomes are the same for retirement.
Salary does two important things that dividends never will.
First, it creates RRSP contribution room. The CRA considers employment income and bonuses to be earned income for RRSP purposes. Dividends do not count. ² If you take only dividends year after year, you slowly lose access to one of the most powerful long-term savings tools available.
Second, salary is what drives CPP contributions. Those contributions are what build your future CPP retirement pension. No salary means no CPP credits. ³
Dividends, on the other hand, have their own appeal. They are paid from after-tax corporate profits and are not subject to CPP. For owners who do not want to maximize CPP, or who already have strong retirement assets elsewhere, that can be attractive.
This is where blending becomes useful.
Consider a simple example.
You need $150,000 personally in 2026.
If you take the full amount as dividends, you will not create any RRSP room and you will not make CPP contributions for the year. Your future retirement savings will need to rely more heavily on TFSAs, corporate investing, or other strategies.
Now imagine you instead pay yourself an $85,000 salary and $65,000 in dividends.
That salary would generate RRSP room for the following year equal to 18 percent of the salary, subject to the annual maximum. ⁴ You would also make CPP contributions, which increases your eventual CPP pension. The remaining cash is paid as dividends without additional CPP cost.
Comparable personal cash flow in the year. Very different long-term outcome.
Another common planning point arises when income approaches the CPP maximum pensionable earnings threshold. CPP contributions apply up to annual pensionable earnings thresholds. ³ Once you reach it, additional salary does not increase CPP costs.
Some owners deliberately set salary close to that level to secure maximum CPP benefits, then use dividends for amounts above it. This can be an efficient middle ground.
There are also years where business owners prefer to leave more money inside the corporation to fund expansion, hire staff, or build an investment portfolio. In those years, paying a modest salary preserves RRSP and CPP participation, while keeping personal withdrawals lower overall.
It is also worth remembering that Eligible dividends, typically paid from income taxed at the general corporate rate receive the federal dividend tax credit, which reflects corporate tax already paid. ⁵ This is part of what makes tax integration work in practice.
What all of this points to is a simple truth.
There is no universal “best” answer.
The right mix depends on:
- Your age and retirement timeline
- How important CPP income will be for you
- Whether RRSPs still play a major role in your plan
- Your corporation’s cash flow and growth goals
For many incorporated Canadians, a thoughtful blend of salary and dividends produces better lifetime results than committing to only one method. With retirement costs rising in 2026 and longevity increasing, those long-term outcomes matter more than squeezing out a small tax saving in a single year.
Thinking about how to pay yourself in 2026? A compensation strategy that balances salary and dividends can make a meaningful difference to your long-term wealth. Connect with your Zeifmans advisor to review your structure and build a plan that supports both today’s goals and your future.
Footnotes
- Department of Finance Canada, Integration of Personal and Corporate Income Tax https://www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-3-property-investments-savings-plans/series-3-property-investments-savings-plan-folio-2-dividends/income-tax-folio-s3-f2-c2-taxable-dividends-corporations-resident-canada.html
- Canada Revenue Agency, What is Earned Income for RRSP Purposes https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4040/rrsps-other-registered-plans-retirement.html
- Canada Revenue Agency, Canada Pension Plan Contribution Rates and Maximums https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll/payroll-deductions-contributions/canada-pension-plan-cpp/cpp-contribution-rates-maximums-exemptions.html
- Canada Revenue Agency, RRSP Deduction Limit https://www.canada.ca/en/revenue-agency/services/tax/registered-plans-administrators/pspa/mp-rrsp-dpsp-tfsa-limits-ympe.html
- Canada Revenue Agency, Dividend Tax Credit https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-40425-federal-dividend-tax-credit.html | https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/corporations/eligible-dividends.html
