How to Pay Yourself from a Corporation in Canada (2025 Guide)

Salary is employment income you earn by working for your corporation. You get paid regularly, like any other employee, and the company issues a T4 at year-end.

Pros:

• Deductible: Salaries are a deductible expense for your corporation, reducing its taxable income.
• CPP Eligible: You build Canada Pension Plan (CPP) contributions, which help with retirement income later.
• RRSP Room: Salary increases your RRSP contribution room.
• Loan/Benefit Friendly: Banks and lenders prefer salary income when assessing credit applications.
• Childcare Deductions: Salary allows you to deduct childcare expenses.

Cons:

• Payroll Overhead: You must register for a payroll account and remit income tax, CPP, and potentially EI.
• Higher Personal Tax: Compared to dividends, salary is taxed at higher marginal rates.

Ideal For: Business owners who want steady income, retirement contributions, and tax deductions for their corporation.

2. Paying Yourself Dividends

Dividends are payments made to you as a shareholder, from the corporation’s after-tax profits.

Pros:

• Simplicity: No payroll account or remittance required.
• Lower Tax: Thanks to the dividend tax credit, personal tax rates are often lower.
• No CPP: You keep more cash, as you don’t contribute to CPP.

Cons:

• No RRSP Room: Dividends don’t generate contribution room.
• No CPP Pension: Less retirement income security.
• Not a Corporate Deduction: The corporation pays tax on profits before issuing dividends.
• TOSI Risk: Family dividends may trigger tax on split income unless exemptions apply.

Ideal for: Owners who prefer a simpler approach and want to minimize tax on cash withdrawals without needing CPP or RRSP room.

3. Best of Both Worlds: Salary + Dividends

Most business owners benefit from a hybrid approach, mixing salary and dividends for tax efficiency.

Common Strategy:

• Pay enough salary to generate maximum RRSP room ($31,000 for 2025 = ~$175,000 salary).
• Top up income with dividends to reduce overall tax liability.

This combo ensures you:

• Get RRSP benefits
• Build CPP credits
• Take advantage of the lower tax rates on dividends
• Retain flexibility for cash flow planning

4. Other Ways to Pay Yourself

• Reimbursements: Repay yourself for legitimate business expenses. These are non-taxable if supported by receipts.
• Shareholder Loans: You may borrow from the corporation temporarily, but CRA rules require repayment or inclusion as income within a year to avoid penalties.
• Capital Dividends: Tax-free dividends from the Capital Dividend Account (CDA) can be declared when your corporation realizes a capital gain.