Guide for Incorporated Owners
Salary vs dividends: how an Ontario owner manager gets paid
Two ways to take money out of your own corporation, one honest comparison, and the 2025 rates behind it.
If you own an incorporated business in Ontario, you choose how to pay yourself: salary, dividends, or a blend of both. There is no single right answer. There is a right answer for your income level, your retirement plans, and how much you value CPP benefits and RRSP room. This page lays out how each route works, using 2025 rates, so you can have an informed conversation with your accountant.
The comparison
| Question | Salary | Dividends |
|---|---|---|
| What the corporation does | Pays you as an employee. Salary is a deductible business expense, so it reduces the corporation's taxable income dollar for dollar. The corporation must run payroll, withhold tax and CPP, remit on schedule, and issue a T4. | Pays you from after tax corporate profits. Dividends are not deductible to the corporation. The board declares the dividend, and the corporation issues a T5. |
| Corporate tax first | No corporate tax on the amount paid as salary, because the salary is deducted before corporate tax is calculated. | The corporation pays tax first: 12.2% combined federal and Ontario on active business income eligible for the small business deduction (2025, first $500,000), and 26.5% combined at the general rate (2025). What is left is paid out as a dividend. |
| CPP obligations (2025) | Yes. Both sides contribute: 5.95% each from employee and corporation on earnings between the $3,500 basic exemption and $71,300, plus 4% each on earnings from $71,300 to $81,200 (the second additional CPP tier). Maximum 2025 contribution is $4,034.10 plus $396.00 per side. The corporation's share is an extra cost on top of your salary. | No CPP contributions on dividends. That saves the contributions now, and it also means dividends build no CPP retirement, disability, or survivor benefits. |
| RRSP room created | Yes. Salary is earned income, creating RRSP room of 18% of earned income, up to the annual dollar limit of $32,490 for 2025 ($33,810 for 2026). | No. Dividends are not earned income and create no new RRSP room. |
| Personal tax treatment | Taxed as regular income at your full marginal rates: federal brackets from 14.5% (2025) and Ontario brackets from 5.05%, plus the Ontario surtax and the Ontario Health Premium, up to a combined top marginal rate of 53.53% (2025). | Taxed through the gross up and dividend tax credit system, designed so corporate plus personal tax roughly equals tax on salary (the integration principle). Non eligible dividends, the kind paid from small business income, are grossed up 15%, with a federal dividend tax credit of 9.0301% of the grossed up amount and an Ontario credit of 2.9863%. Eligible dividends are grossed up 38%, with credits of 15.0198% federal and 10% Ontario (2025). |
| Which dividend type | Not applicable. | Dividends paid from income taxed at the small business rate are non eligible. Dividends from income taxed at the general rate can be designated eligible, tracked through the corporation's GRIP balance. The two types are taxed very differently in your hands, so the label matters. |
| Income splitting with family | Salary paid to a spouse or adult child must be reasonable for the work actually done, or the CRA can deny the deduction. | Since 2018, the tax on split income (TOSI) rules tax dividends paid to related adults at the top rate unless an exclusion applies, for example the labour or capital contribution tests, the age 65 rule for a spouse, or the excluded business and excluded shares tests. Splitting is far narrower than it used to be. Get advice before paying family dividends. |
| Retirement implications | Builds CPP benefits and RRSP room, the two registered pillars most owner managers rely on. Salary is also the income lenders and insurers most easily recognize. | Keeps more cash in your hands at some income levels today, but builds neither CPP nor RRSP room, so retirement saving has to be planned another way, often inside the corporation. |
| Administration | Ongoing payroll: source deductions, remittance deadlines, T4 and T4 summary each year, and a payroll account with the CRA. | Simpler: director resolutions, solvency requirements under corporate law, and a T5 each year. No payroll account needed for dividend only pay. |
Rates shown are for the 2025 tax year in Ontario. Personal credits, the Ontario surtax (20% on Ontario tax over $5,710, and a further 36% over $7,307, for 2025), and your other income all change the final numbers. The salary and dividend calculator runs these 2025 rates on your own amount.
Check the rest of your plan, too
Pay is one piece of the plan. Run your own amount through the salary and dividend calculator, then take the free Plan Gap Check to see which other areas of your plan are worth a look: tax, succession and exit, estate, and protection.
Book a Free Conversation Call 613-983-3029
Reach out during working hours (9:00 AM to 9:00 PM Eastern) and you will hear from Sean within 2 hours. Reach out after hours and you will hear from Sean within 2 hours of the next working period.
Why the blend is so common
Many owner managers land on a mix: enough salary to use personal credits, build RRSP room, and contribute to CPP, with dividends for amounts above that. The right split depends on your corporation's income, whether it qualifies for the small business deduction, your province (Ontario throughout this page), your spouse's income, and your retirement timeline. It is a calculation, not a habit, and it deserves a fresh look each year as rates and limits change.
Two cautions worth knowing. First, paying salary requires the corporation to have the cash flow for payroll remittances through the year. Second, how you pay yourself also affects your insurability and your disability and life coverage planning, because insurers look at earned income. Compensation, investing, and protection are one plan, not three.
Talk it through with Sean
Every situation has its own numbers. A free 30 minute conversation is the place to look at yours, with no obligation and no pressure.
Book a Free Conversation Call 613-983-3029
Reach out during working hours (9:00 AM to 9:00 PM Eastern) and you will hear from Sean within 2 hours. Reach out after hours and you will hear from Sean within 2 hours of the next working period.
Methodology, assumptions, and sources
All figures on this page are for the 2025 tax year and an Ontario resident corporation and shareholder. Corporate rates: 12.2% combined on active business income eligible for the small business deduction (9% federal plus 3.2% Ontario, first $500,000), and 26.5% combined at the general rate (15% federal plus 11.5% Ontario). CPP figures are the CRA's published 2025 amounts: basic exemption $3,500, year's maximum pensionable earnings $71,300, year's additional maximum pensionable earnings $81,200, contribution rates 5.95% and 4%, maximums $4,034.10 and $396.00 per side. The RRSP dollar limit is $32,490 for 2025 and $33,810 for 2026. Dividend gross up and credit percentages are the statutory 2025 amounts. Ontario surtax thresholds are the indexed 2025 amounts. Personal situations vary: associated corporations share the $500,000 small business limit, the federal small business limit is also reduced when a group's taxable capital is between $10 million and $50 million, and personal services business income follows different rules entirely. This page is education, not tax advice.
Sources: Canada Revenue Agency, corporation income tax rates and small business deduction pages; Government of Canada, Canada Pension Plan contribution rates and maximums for 2025; Canada Revenue Agency, RRSP dollar limits; Ontario Ministry of Finance, corporate income tax rates; Raymond Chabot Grant Thornton, 2025 tax planning guide tables for Ontario (dividend tax credits and surtax thresholds), cross checked against TaxTips.ca 2025 Ontario rates. Figures verified October 2026 against these sources; where 2026 personal figures were published, they are noted as 2026.
Get this guide as a conversation starter
Leave your details and Sean will follow up personally. If you ran the calculator, your conversation can start from your own numbers.
Reach out during working hours (9:00 AM to 9:00 PM Eastern) and you will hear from Sean within 2 hours. Reach out after hours and you will hear from Sean within 2 hours of the next working period.
You do not have to sort this out on your own.
You don't have to figure this out alone. I'm here to help you through every step.
Reach out during working hours (9:00 AM to 9:00 PM Eastern) and you will hear from Sean within 2 hours. Reach out after hours and you will hear from Sean within 2 hours of the next working period.