Which is better for incorporated business owners? After-tax comparison calculator
Salary vs Dividends Calculator
Compare the after-tax outcome of paying yourself salary vs eligible dividends from your Canadian corporation.
Salary
RRSP room, CPP, EI eligible
$0
After-Tax in Your Pocket
Eligible Dividends
No CPP, dividend tax credit
$0
After-Tax in Your Pocket
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Salary creates RRSP contribution room (18% of earned income up to ~$32,490 for 2025)
Salary is CPP-pensionable — builds future CPP retirement benefit
Salary is a deductible business expense — reduces corporate taxable income to zero before tax
Easier to budget with predictable paycheques
Enables EI eligibility if you opt in as a self-employed individual
Better for income splitting with a spouse who actually works in the business
Arguments for Dividends
No CPP contributions required — saves up to ~$7,700/year in CPP premiums
Lower personal tax rate due to the dividend tax credit (eligible dividends taxed preferentially)
No payroll administration required (no T4, ROE, remittances)
More flexibility — can be paid when cash flow allows
Potentially lower combined corporate + personal tax on eligible dividends vs general corporate rate income
The Integration Principle
Canada's tax system is theoretically designed around "integration" — total tax paid on corporate income (corporate tax + personal tax on dividends) should equal what you'd pay on the same income personally. In practice, integration is imperfect and the optimal mix varies by:
Income level (salary wins at lower incomes where CPP benefit exceeds premium; dividends often win at higher incomes)
Province (different provincial tax rates and dividend tax credits)
Whether you have RRSP room (salary creates room; dividends don't)
Age (near 65? CPP contributions may not recover in benefit payments)
Whether you need to qualify for mortgages (salary as T4 employment income is easier to document)
Most tax advisors recommend a combination: sufficient salary to maximize RRSP room and maintain reasonable CPP, with dividends for additional distributions.
The Optimal Salary for RRSP Room
To maximize RRSP contribution room for the 2025 tax year, you need T4 employment income of at least:
Many incorporated business owners pay themselves exactly the salary needed to generate maximum RRSP room, then take additional distributions as dividends. This strategy is commonly called the "RRSP salary" approach.