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Put the same corporate profit through both routes and see which leaves more in your pocket, along with the CPP and RRSP trade-offs.
Salary is a deductible expense for your company, so it avoids corporate tax, but it attracts CPP on both sides and is taxed at full personal rates. Dividends come out of after-tax profit, then get a dividend tax credit personally.
The two routes usually land close on pure tax. The real differences are CPP pension, RRSP room, and how lenders read your income.
Salary up to a target level builds RRSP room and CPP, and makes mortgage applications easier. Dividends above that keep payroll simple and let you time income across years.
Questions
Neither always wins. Salary creates RRSP room and CPP pension; dividends avoid payroll and CPP. The best mix depends on your income needs, retirement plans and province.
No. RRSP room is 18% of the prior year’s earned income, which includes salary but not dividends.
A dividend paid from income taxed at the small business rate. It carries a smaller gross-up and tax credit than an eligible dividend.
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Book a call and we'll run it properly, against your books, not a form.