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.
- 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
- You must set up a payroll account and remit source deduction
- You need to pay both employer and employee portions of CPP
- 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
- You cannot contribute to CPP
- You cannot earn RRSP maximum limit
- Dividends cannot be expense at the corporate level