Should I Pay Myself Dividends or Salary

The question “should I pay myself dividends or a salary?” is one that comes up frequently with small business owners. There are several factors to consider when trying to determine the best option for you.

Declaring dividends will have no impact on your corporate taxes, since dividends are not an expense to your company. They are taxed at your personal tax rate just like any other source of income. You do not have to pay CPP on your dividend income, however you will have to pay income tax when you complete your personal taxes. Dividend income also does not add to your RRSP contribution room. So, if you want to contribute to CPP and RRSPs, dividends may not be the best option.

Taking a salary differs from dividends in many ways. This would be considered an expense to your company, and therefore would decrease your corporate taxes payable. You are required to contribute to CPP if you earn employment income, and this (along with income taxes) will be deducted from your pay throughout the year. In addition, any employment income you earn will add to your RRSP contribution room.

Overall, it is best to consult your accounting professional to help you weigh the costs and benefits of each alternative and choose the best one suited to your needs.