Salary or Dividends?

If you are self-employed, and your business is incorporated, you can choose how to pay yourself: salary, dividends, or both.

There are pros and cons for both and you should choose one based on your business income level, cash flow, and other circumstances surrounding your business.

Salary: 

• You contribute to CPP for the future
• You earn RRSP maximum limit
• There will be no surprise taxes because it is deducted from the source each time
• Salary can be expense at the corporate level

However…

• You must set up a payroll account and remit source deduction
• You need to pay both employer and employee portions of CPP

Dividends:

• Dividends have a lower tax rate than salary
• You do not need to set up a payroll account and calculate source deduction
• You can declare dividends and pay yourself any time

However…

• You cannot contribute to CPP
• You cannot earn RRSP maximum limit
• Dividends cannot be expense at the corporate level