Is it better to pay myself salary or dividends?

On cash alone the two are usually within a few percent, because the tax system is designed to 'integrate' them. The real differences are elsewhere. Salary costs CPP but creates RRSP room, CPP pension, and a deductible expense that proves income for a mortgage. Dividends skip CPP and are simpler. Most accountants suggest enough salary to max your RRSP room, then dividends.

What is the small business tax rate in 2026?

9% federal on the first $500,000 of active business income, plus a provincial rate from 0% in Manitoba and Yukon to 3.2% in Ontario, dropping to 2.2% from July 2026. Quebec is 3.2%, or 2.2% for years starting after April 29, 2026. Combined rates are roughly 9% to 12.2%.

How are dividends taxed personally?

Non-eligible dividends, from small-business-rate income, are grossed up 15% and added to your income. A dividend tax credit of 9.0301% federal plus a provincial credit then offsets the corporate tax already paid. Eligible dividends, from income taxed at the general rate, are grossed up 38% with larger credits.

Do I pay EI on my salary?

Not if you control more than 40% of the voting shares. You are exempt and cannot collect regular EI. CPP still applies on salary, both halves.

What about leaving money in the corporation?

Profit you do not need to live on can stay in the corporation, taxed only at the small business rate, and be invested. Personal tax is deferred until you take it out. That deferral is the main tax advantage of incorporating. Passive investment income above $50,000 a year reduces the small business limit.

Does this account for income splitting?

No. Dividends to family members fall under the tax on split income (TOSI) rules unless an exception applies, and a spouse's salary must be reasonable for the work done. Get advice before splitting.

What about the Ontario health premium, OAS clawback and CCB?

The grossed-up dividend raises your net income for these purposes, so dividends can cost more in clawbacks than the same cash as salary. The calculator includes the health premium and income tax but not benefit clawbacks.

How much salary creates the maximum RRSP room?

RRSP room is 18% of earned income up to the dollar limit, so a salary of about $196,611 in 2026 creates the maximum $35,390 of room for 2027. Dividends create none.

Do I have to pay CPP if I pay myself a salary?

Yes, both halves. The corporation pays the employer share and you pay the employee share, about $9,293 in total at the 2026 ceiling for CPP and CPP2. In return you build CPP entitlement. Dividends need no CPP and build none.

Salary vs Dividends Calculator for Incorporated Business Owners (2026)

If you own a corporation, this shows the best way to pay yourself the cash you need this year. It compares all salary, all dividends and a mix. You see what you keep, what stays in the company, and the total tax under each. It also shows the RRSP room and CPP that only salary creates.

Best way to pay yourselfAll dividendsNo salary dividends of $102,938 leaves you $90,000 after tax and keeps $56,002 invested in the company after 11.7% corporate tax. Dividends leave the most cash in your pocket and the company combined this year, but build no RRSP room and no CPP pension. It creates $0 of RRSP room for next year and no CPP.

You keepLeft in the companyTotal tax

Scenario	Salary	Dividends	You keep	Left in company	Total tax	RRSP room
All salary	$123,145	$0	$90,000	$46,100	$43,900	$22,166
All dividends	$0	$102,938	$90,000	$56,002	$33,998	$0
Salary to the CPP ceiling, rest dividends	$74,600	$41,650	$90,000	$47,683	$42,317	$13,428
Salary for maximum RRSP room, rest dividends	$175,354	$0	$119,167	$0	$60,833	$31,564
Your mix: 50% salary	$64,286	$50,003	$90,000	$48,979	$41,021	$11,571

Total tax = corporate tax + your income tax + CPP (both halves). "Left in company" is after corporate tax and can be invested or paid out later.

The trade-off in short. Canada's tax system is built so that salary and dividends end up taxed about the same in total. This is called integration. In most provinces dividends come out a percent or two ahead or behind. What really differs: salary costs $9,293 of CPP but buys you a CPP pension and RRSP room (18% of salary, up to $35,390 on $196,611 of salary). Dividends skip CPP and RRSP room. They are simpler but count less when you qualify for a mortgage. Money left in the company is taxed at only 11.7% until you take it out. That is the real advantage of incorporating when you need less than you earn.

Show the math

Salary comes off the profit. The company pays the employer half of CPP (5.95% to $74,600, 4% to $85,000). You pay 2026 Ontario personal tax and the employee half. A controlling shareholder pays no EI. Dividends come out of profit after the 11.7% small-business rate (federal 9.0% + Ontario 2.7%). They are non-eligible dividends, grossed up 15%, with the federal and provincial dividend tax credits. For a set draw, each scenario finds the dividend that tops your after-tax cash up to the target. Not modelled: the general rate above the $500,000 business limit, eligible dividends, passive-income grind, provincial payroll taxes (e.g. Ontario EHT), and the value of the CPP pension itself.

What you need to know for 2026

The federal small business rate is 9% on the first $500,000 of active income. With the province added it ranges from 9% in Manitoba to 11.7% in Ontario for a calendar-year 2026 corporation. Ontario cut its rate from 3.2% to 2.2% on July 1, 2026, so its full-year 2027 rate will be 11.2%.
Non-eligible dividends are grossed up 15% and earn a federal credit of 9.03% of the grossed-up amount, plus a provincial credit. The system is built so salary and dividends end up close. This is called integration.
Salary costs both halves of CPP (up to $9,293 in 2026) but creates RRSP room and CPP pension. Dividends create neither.
Owner-managers who control more than 40% of the voting shares are exempt from EI.
Passive investment income above $50,000 in the corporation reduces the small business limit by $5 for every $1, to nil at $150,000.

How this calculator works

Salary. The corporation pays you a salary plus its employer half of CPP, and together they use up the profit. You pay personal income tax on the salary with the regular brackets and credits, plus the employee half of CPP. No EI applies to a controlling shareholder.

Dividends. The corporation pays small-business tax on the profit, federal 9% plus the provincial rate, and pays the rest to you as a non-eligible dividend. On your return the dividend is grossed up 15% and taxed, then the federal and provincial dividend tax credits are subtracted. That roughly refunds the corporate tax paid.

The result compares net cash in your hands and total tax paid by the corporation and you.

Worked example: $120,000 of profit, Ontario, no other income

Line	Salary	Dividends
Corporate tax (11.7%)	—	$14,040.00
Employer CPP	$4,646.45	—
Paid to you	$115,353.55	$105,960.00
Employee CPP	$4,646.45	—
Personal tax	$25,271.41	$13,811.78
Net cash	$85,435.69	$92,148.22
RRSP room created	$20,763.64	$0

Assumptions

All profit qualifies for the small business deduction (active income under the business limit, no passive-income grind) and is paid out in the year.
2026 provincial dividend tax credit rates come from the 2025 provincial worksheets until the 2026 forms are out. Ontario cut its small-business rate from 3.2% to 2.2% on July 1, 2026, prorated for years that straddle the date, so a calendar-year 2026 corporation pays a blended 2.7%, which is the rate used here. Quebec’s cut to 2.2% applies only to taxation years starting after April 29, 2026, so a calendar-year 2026 corporation still pays 3.2%.
Personal tax uses the basic personal amount only. TOSI, benefit clawbacks and the value of CPP benefits are not modelled.

How to pay yourself

Salary needs a payroll account and remittances. Dividends need a resolution and a T5. The tool told you which. Here is the paperwork.

Salary: open a payroll account with the CRA, deduct CPP and tax each pay, remit by the 15th of the next month, and issue a T4 by the end of February.Opening a payroll account ↗
Dividends: record a directors’ resolution, pay the dividend, and file a T5 slip and summary by the end of February.T5 information return ↗
File the corporation’s T2 return within six months of year-end and pay the corporate tax within two or three months.Corporation income tax ↗

Common questions

Frequently asked questions

Is it better to pay myself salary or dividends?: On cash alone the two are usually within a few percent, because the tax system is designed to 'integrate' them. The real differences are elsewhere. Salary costs CPP but creates RRSP room, CPP pension, and a deductible expense that proves income for a mortgage. Dividends skip CPP and are simpler. Most accountants suggest enough salary to max your RRSP room, then dividends.
What is the small business tax rate in 2026?: 9% federal on the first $500,000 of active business income, plus a provincial rate from 0% in Manitoba and Yukon to 3.2% in Ontario, dropping to 2.2% from July 2026. Quebec is 3.2%, or 2.2% for years starting after April 29, 2026. Combined rates are roughly 9% to 12.2%.
How are dividends taxed personally?: Non-eligible dividends, from small-business-rate income, are grossed up 15% and added to your income. A dividend tax credit of 9.0301% federal plus a provincial credit then offsets the corporate tax already paid. Eligible dividends, from income taxed at the general rate, are grossed up 38% with larger credits.
Do I pay EI on my salary?: Not if you control more than 40% of the voting shares. You are exempt and cannot collect regular EI. CPP still applies on salary, both halves.
What about leaving money in the corporation?: Profit you do not need to live on can stay in the corporation, taxed only at the small business rate, and be invested. Personal tax is deferred until you take it out. That deferral is the main tax advantage of incorporating. Passive investment income above $50,000 a year reduces the small business limit.
Does this account for income splitting?: No. Dividends to family members fall under the tax on split income (TOSI) rules unless an exception applies, and a spouse's salary must be reasonable for the work done. Get advice before splitting.
What about the Ontario health premium, OAS clawback and CCB?: The grossed-up dividend raises your net income for these purposes, so dividends can cost more in clawbacks than the same cash as salary. The calculator includes the health premium and income tax but not benefit clawbacks.
How much salary creates the maximum RRSP room?: RRSP room is 18% of earned income up to the dollar limit, so a salary of about $196,611 in 2026 creates the maximum $35,390 of room for 2027. Dividends create none.
Do I have to pay CPP if I pay myself a salary?: Yes, both halves. The corporation pays the employer share and you pay the employee share, about $9,293 in total at the 2026 ceiling for CPP and CPP2. In return you build CPP entitlement. Dividends need no CPP and build none.

Tax-saving strategies that use this calculator

Incorporating: Salary or Dividends? (2026)The 9% small business rate on the first $500,000, when salary beats dividends, the passive-income grind and the TOSI trap when you pay family.

Sources

Every figure on this page comes from one of these primary sources. Data last verified September 7, 2026.

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Data verified for tax year 2026: September 7, 2026 Updated September 7, 2026 By Nishant Malik, founder of GlassLayer