Salary vs. Dividends: How Should You Pay Yourself in Canada?

Ah, the joys of being your own boss—setting your hours, making the big decisions, and, of course, figuring out how to pay yourself. If you’re an incorporated Canadian business owner, you’ve probably faced the classic dilemma: salary or dividends? I get this question often, so let’s break it down in a way that won’t make your head spin.

Salary: The Reliable Paycheck

💰 Pros:

• Steady, predictable income—great for peace of mind and budgeting.

• Helps qualify for mortgages (banks love seeing a T4).

• Contributes to CPP, so future you gets some retirement money.

• Lets you contribute to an RRSP (because retirement in the Bahamas sounds nice).

💸 Cons:

• Higher personal taxes—ouch.

• Payroll deductions (CPP, income tax) can feel like a money vacuum.

• More admin work (T4s, payroll remittances, running payroll… fun stuff).

• Requires a payroll software (and costs money), unless you are going to calculate deductions manually (I don't recommend this)

  
  

Dividends: The Flexible Friend

💰 Pros:

• Tax-efficient—more money in your pocket!

• No CPP contributions, meaning lower costs now (but no CPP later).

• No payroll headaches—just issue a dividend and move on.

• Flexible—pay yourself when you want.

  
  

💸 Cons:

• Less predictable income, which can make budgeting tricky if are not consistent with draws.

• No CPP means you’re on your own for retirement savings.

• Doesn’t help with RRSP contributions.

• Banks aren’t always thrilled when you try to get a mortgage with dividend income.

  
  

So, What’s the Best Choice?

Honestly? It really depends on your unique situation, your needs and your future goals. Some of our clients are paid salaries, and some are paid dividend compensation, and some have both. But hey, every situation is different—talk to your accountant before making any big moves!