Salary or Dividends From Your Own Corporation

Once your business is incorporated, the money in the corporation's bank account isn't yours until the corporation pays it to you. The usual ways to take it out are salary, dividends, or a mix of the two, and each is taxed differently at both ends.

Paying yourself a salary

A salary makes you an employee of your own corporation, with a payroll account and all that comes with it.

• The corporation withholds income tax from each payment and sends it to the CRA.
• It also deducts CPP. For 2026 the rate is 5.95% from you and 5.95% from the corporation, on earnings between $3,500 and $74,600 (up to $4,230.45 each). A second contribution (CPP2) of 4% each applies to earnings between $74,600 and $85,000, up to $416 each.
• If you control more than 40% of the corporation's voting shares, your job with it isn't insurable employment under the Employment Insurance Act.
• You get a T4 slip at the end of the year.
• The salary is an expense of the corporation, so it lowers the corporation's taxable income. Like any expense, it has to be reasonable in the circumstances.
• Salary counts as earned income, so it builds RRSP room. Your limit is 18% of the previous year's earned income, up to a yearly dollar limit ($33,810 for 2026 and $35,390 for 2027).
• CPP contributions can help you qualify for CPP retirement, disability and survivor benefits.

Paying yourself dividends

A dividend isn't an expense of the corporation. Business income earned in a corporation is taxed at two levels. The corporation pays tax when it earns the income, and you pay tax when what's left is paid out to you as a dividend. The dividend gross-up and dividend tax credit are meant to bring the total roughly in line with what you'd have paid earning the income yourself.

• Dividends from your corporation are usually reported on a T5 slip.
• On your return you report more than you received: 138% of eligible dividends, or 115% of other than eligible dividends. You then claim the dividend tax credit, federally and on the BC428.
• A Canadian-controlled private corporation can pay eligible dividends without a penalty tax only up to its general rate income pool (GRIP). GRIP generally reflects income that didn't get the small business deduction or another special rate.
• CPP contributions are based on employment income, so dividends don't come with CPP contributions (or the benefits they build toward).
• Dividends aren't on the list of income that counts as earned income for RRSP purposes, so they don't add to your RRSP room.

Side by side

Neither one is right for everyone. It depends on how much the corporation earns, what rate it pays, whether you want RRSP room and CPP, your other income, and what the money is for.

Paying family members

The tax on split income (TOSI) applies the highest marginal tax rate to certain income from a related business. That includes dividends on private company shares received directly or through a trust or partnership. Some amounts are excluded:

• For people 18 or older, income from a business they're actively involved in on a regular, continuous and substantial basis. Working an average of at least 20 hours a week while the business operates meets this automatically.
• For people 25 or older, income from excluded shares. In general they must own at least 10% of the votes and value directly, the corporation can't be a professional corporation, and less than 90% of its business income can come from services.
• For people 25 or older, an amount that's a reasonable return from the related business.
• Amounts received by the spouse of an owner who is 65 or older, where the amount would have been excluded for the owner.

These rules are detailed, and whether an exclusion applies is a question of fact. A salary paid to a family member is still an expense, and still has to be reasonable for the work they actually do.

Shareholder loans

Taking money out as a loan is a third route, but if a shareholder borrows from the corporation, the amount is generally included in their income for the year. There are exceptions. One of them covers a loan repaid within one year after the end of the corporation's tax year in which it was made, as long as the repayment isn't part of a series of loans and repayments.

How we help

Corporate work at our end covers the year end, the corporate tax return and the planning that goes with it. On the consulting side we read the numbers, explain what they mean for the decision in front of you, and show our reasoning so you can push back on it. We also handle payroll filing and remittances and T-slip filing.