Salary against dividends
This guide explains how an owner takes money out of a corporation, by salary, by dividends, or a mix of both. It covers RRSP room, CPP contributions and payroll accounts. We prepare and file your articles of incorporation for $35.00, HST included. The government fee is separate and charged at cost: $200.00 to Corporations Canada under the CBCA, or $300.00 to the Ontario Business Registry under the OBCA. Open Corporation for $35 is a department of Gondaliya CPA. A Chartered Professional Accountant reviews this guide against Canada Revenue Agency guidance before it is published, and again after each federal budget.
Two ways to pay yourself
Money in a corporation belongs to the corporation, not to its owner. It reaches the owner personally as salary, as a dividend, or as a mix of the two.
The two are taxed in different places and at different times. Salary is deducted by the corporation and taxed in your hands. A dividend is paid from profit the corporation has already been taxed on.
| Question | Salary | Dividend |
|---|---|---|
| Deductible to the corporation? | Yes | No, paid from after-tax profit |
| Payroll account needed? | Yes | No |
| Tax withheld at source? | Yes, remitted by the corporation | No |
| CPP contributions? | Yes, employee and employer shares | No |
| Creates RRSP room? | Yes | No |
| Slip issued | T4 | T5 |
Neither method is cheaper in every case. The answer depends on your income, your plans for retirement and what the corporation earns.
How salary works
A salary is an expense of the corporation. It reduces the corporation's taxable income, and you pay personal income tax on it at your marginal rate.
The corporation withholds income tax and CPP from each payment and remits them with its own CPP share. That requires a payroll account under the corporation's business number.
| Salary step | What it involves |
|---|---|
| Open a payroll account | Registered under the business number before the first remittance is due |
| Withhold at each pay | Income tax and CPP, and EI where the owner is insurable |
| Remit to the Canada Revenue Agency | By the 15th of the month after the pay, for a regular remitter |
| Report the year | A T4 slip and T4 summary by the last day of February |
An owner who controls more than 40 percent of the voting shares is not insurable under the Employment Insurance Act. EI premiums then do not apply to that salary.
Our payroll setup guide covers the remittance calendar in full. Our business number and CRA accounts guide explains how the payroll account is opened.
Our $35.00 fee includes HST. Government fees are passed through at cost with no mark-up. Every figure is on our full pricing page.
How dividends work
A dividend is declared by the directors by resolution and paid to shareholders. It is not deductible, so it comes out of profit after corporate tax.
The shareholder reports a grossed-up amount and claims a dividend tax credit. The credit is designed to recognize the tax the corporation has already paid on that profit.
| Type of dividend | Paid from | Personal tax treatment |
|---|---|---|
| Non-eligible dividend | Income taxed at the small business rate | Smaller gross-up and a smaller dividend tax credit |
| Eligible dividend | Income taxed at the general corporate rate | Larger gross-up and a larger dividend tax credit |
No tax is withheld when a dividend is paid. The corporation reports it on a T5 slip by the last day of February, and the shareholder settles the tax on the personal return.
A large dividend can leave a balance owing in April. The Canada Revenue Agency can then ask the owner to pay personal tax by quarterly instalments.
We file your incorporation for $35.00, HST included
Government fee shown separately at cost. A CPA plans the salary and dividend mix before the first payment.
RRSP room and CPP contributions
RRSP contribution room is 18 percent of the previous year's earned income, up to an annual dollar limit. Salary is earned income, and dividends are not.
An owner paid only dividends builds no new RRSP room. An owner paid salary builds room each year that the salary continues.
CPP works the same way. Salary carries contributions that build a CPP retirement pension, and dividends carry none.
| Effect | Salary | Dividend |
|---|---|---|
| RRSP room for the next year | 18 percent of salary, up to the annual limit | None |
| CPP contributions | Paid by the owner and by the corporation | None |
| CPP retirement pension | Built up by each year of contributions | Not built up |
The CPP employer share is a real cost to an owner-managed corporation. The owner pays both sides, once personally and once through the corporation.
The annual RRSP dollar limit and the CPP maximums change each year. The Canada Revenue Agency publishes both before the year begins.
Paying family members
A salary paid to a spouse or a child must be reasonable for the work they actually do. A salary above that is not deductible to the corporation.
Dividends paid to family members are tested under the tax on split income rules. Where no exclusion applies, the dividend is taxed at the top personal rate.
| Payment to a family member | Test that applies |
|---|---|
| Salary | Reasonable for the services the person performs |
| Dividend | The tax on split income rules and their exclusions |
Shares issued to family members after the fact do not change who owned them when a dividend was paid. The share structure is settled before the first dividend.
The year end also matters here. Our fiscal year end guide explains how the corporate year sits beside the calendar-year T4 and T5 slips.
What paying yourself costs to set up
The incorporation comes first, and our fee for it is fixed. A payroll account is opened only if salary will be paid.
The table sets out each charge, its HST treatment and who collects it.
| Item | Amount | HST | Total | Who charges it |
|---|---|---|---|---|
| Our incorporation filing fee | $35.00 | Included | $35.00 | Open Corporation for $35 |
| Federal articles of incorporation | $200.00 | Not applicable | $200.00 | Corporations Canada |
| Ontario articles of incorporation | $300.00 | Not applicable | $300.00 | Ontario Business Registry |
| Registering the payroll account | Not confirmed, reviewer to verify on the official page | Not applicable | Not confirmed, reviewer to verify on the official page | Canada Revenue Agency |
Our $35.00 fee includes HST and government fees are passed through at cost with no mark-up. These figures were last checked on 7 September 2026.
Salary and dividends both appear on the corporation's T2 return. Our first T2 guide explains that filing.
What a CPA checks before you pay yourself
This guide explains the rules. It cannot tell you the right mix, because that depends on your income, your family and the corporation's profit.
Your personal income need is the first thing we look at. We work out what you need to live on and what can stay inside the corporation.
Then retirement. If you want RRSP room or a larger CPP pension, we set a salary that builds them.
Then the payroll account. If salary is chosen, we open it under the business number before the first remittance falls due.
Then family. We check each salary against the work done, and each dividend against the tax on split income rules.
Last, the paperwork. We draft the dividend resolution, prepare the T4 and T5 slips, and diarize the February deadline. The parent firm sets out the same ground in its Gondaliya CPA resources library.
Frequently asked questions
These are the questions owners ask about paying themselves. Each answer carries the figure, the rule or the body that makes it true, so it can be read on its own.
Should I pay myself a salary or dividends?
Do dividends create RRSP room?
Do I pay CPP on dividends?
Do I need a payroll account to pay myself?
Is tax withheld from a dividend?
What is the difference between eligible and non-eligible dividends?
Can I pay my spouse or children from the corporation?
What does it cost to incorporate before paying myself?
Why owners trust the filing to us
Gondaliya CPA Professional Corporation is registered with CPA Ontario under firm registration number 61330051. Our clients have left us 1,300+ five-star Google reviews, and we work from 13 Ontario offices, open 9:00 AM to 8:30 PM, Monday to Sunday. We back every filing with a 30-day money-back guarantee and a 60-day fee-matching policy, and we are a Xero Partner Award Winner 2026. Open Corporation for $35 is a department of Gondaliya CPA.
Ready to incorporate
Send the intake form and we will confirm your jurisdiction, your share structure and your year end before anything is filed. Our fee is $35.00, HST included, and the government fee is shown separately at cost. Payment is by Interac e-Transfer to info@gondaliyacpa.ca, and the security question is Not Applicable because auto-deposit is enabled.
No legal advice
Gondaliya CPA Professional Corporation is a firm of Chartered Professional Accountants licensed by CPA Ontario, firm registration number 61330051. It is not a law firm. We prepare and file corporate documents and we provide accounting and tax advice. Nothing on this page is legal advice, and reading it creates no solicitor and client relationship. For legal advice, including advice on a shareholder agreement before dividends are paid, consult a lawyer licensed in the province where your corporation carries on business.
