Should I take a salary or dividends from my Ontario corporation?
There is no single right answer. Salary generates earned income (RRSP contribution room, CPP entitlement, EI if opted-in) and is deductible to the corporation; dividends are simpler administratively but generate no RRSP room and no CPP contribution. Your best mix depends on cash needs, retirement plan, family situation, and whether the corporation is grinding through the SBD limits.
Salary mechanics. Deductible to the corporation under ITA s. 18(1)(a) as reasonable remuneration. Taxed as employment income on your T1 with the corporation withholding tax, CPP, and (usually opted-out for owner-managers) EI. Reduces corporate active business income so the corporation may not fully absorb the SBD limit. Creates 18% RRSP room (up to the annual dollar limit, $32,490 for 2026 based on 2025 earnings).
Dividend mechanics. Not deductible to the corporation. Paid from after-tax retained earnings. Eligible dividends (paid from GRIP) grossed up 38% with a 15.02% federal DTC and Ontario DTC; non-eligible (paid from active income taxed at SBD rate) grossed up 15% with a smaller DTC. No CPP, no RRSP room.
Example: an Ontario owner-manager taking $150,000 net in 2026. Salary route: gross salary about $175,000, generates $32,490 RRSP room, contributes $4,230.45 employee CPP (matched by corp). Dividend route: non-eligible dividend about $190,000 grossed up to $218,500, no RRSP room, no CPP; slightly higher net-in-pocket by roughly $2,000 to $4,000 depending on province, but forfeits $32,490 RRSP room worth roughly $17,000 of deferred tax.
Note: A hybrid split is usually optimal: enough salary to maximize RRSP room and CPP (about $180,500 gross in 2026 for full RRSP), remainder as dividends. Cross-check every year; the answer changes when SBD grinds, passive income thresholds, or family-trust dividends enter the picture.
Source: canada.ca â Corporate tax rates
— Bader A. Chowdry, CPA, CA, LPA — Insight Accounting CPA
Disclaimer: Bader A. Chowdry, CPA, CA, LPA is a Licensed Public Accountant regulated by CPA Ontario. Insight Accounting CPA Professional Corporation is a Chartered Professional Accountant firm. This content is general information only and does not constitute professional advice for your specific facts. Confirm current rules and figures with your own advisor before acting.