Once you incorporate, the corporation's money is not your money. To get it into your personal bank account, you need to pay it out in a way the CRA recognizes: a salary, a dividend, or (temporarily) a shareholder loan. Each one is taxed differently, has different paperwork, and affects your CPP pension and RRSP room in different ways.

This guide explains how each method works in 2026, using current figures from the CRA. It is general information, not tax advice. The right mix of salary and dividends depends on your province, your income, your retirement plans, and your family situation, so have an accountant review your numbers before you decide.

If you have not incorporated yet, start with sole proprietorship vs corporation in Canada.

What are your options for paying yourself?

You have two main ways to pay yourself from a corporation: salary (you are an employee of your company) or dividends (you are a shareholder receiving a share of after-tax profit). Many owner-managers use both. A third route, borrowing from the company, is a short-term tool with strict repayment rules, not a way to pay yourself.

The key difference is where the tax lands:

  • Salary is a business expense for the corporation, so it reduces the corporation's taxable income. You pay personal income tax on it, and CPP applies.
  • Dividends are paid out of profit that has already been taxed in the corporation. You pay personal tax on them at lower rates, through the dividend gross-up and tax credit system described below. No CPP applies.

Because the corporation pays tax before a dividend and none before a salary, the two routes are designed to end up in a roughly similar place overall. This principle is called integration, and it is not exact: results vary by province, by income level, and by year.

Salary vs dividends: side-by-side comparison

Salary costs more to administer but builds retirement room and CPP benefits; dividends are simpler to pay but build neither. The table below summarizes the main differences for 2026.

FeatureSalaryDividends
Tax treatment for the corporationDeductible expense (if reasonable)Not deductible; paid from after-tax profit
Personal taxTaxed as employment incomeGrossed up, then reduced by the dividend tax credit
Payroll account needed
Ongoing remittances to the CRAMonthly or quarterly source deductionsNone at payment time
Tax slipT4T5
Slip due dateLast day of FebruaryLast day of February
CPP contributions (2026)5.95% each (employee and employer) on $3,500 to $74,600, plus CPP2None
EI premiums for an owner with more than 40% of voting sharesGenerally not insurableNot applicable
Creates RRSP contribution room
Tax on split income (TOSI) riskDoes not apply to salaryCan apply to dividends paid to family
Salary vs dividends from a Canadian corporation. CRA figures checked September 2026.

How does paying yourself a salary work?

Paying yourself a salary means running payroll for one employee: you. The corporation registers a payroll account, withholds tax and CPP from each pay, sends those amounts to the CRA on schedule, and gives you a T4 slip after year end.

Step 1: Open a payroll program account

The CRA says you need a payroll program account if you pay salaries or wages, bonuses, or vacation pay, or provide taxable benefits. If your corporation already has a business number, you add a payroll (RP) account to it. The CRA's employer guide says you must register before the date your first remittance is due.

Step 2: Withhold source deductions from each pay

Each time you pay yourself, the corporation withholds:

  • Income tax, federal and provincial, based on the CRA's payroll deduction tables.
  • CPP contributions. For 2026, the CRA lists a rate of 5.95% for the employee and 5.95% for the employer, a $3,500 basic exemption, and maximum pensionable earnings of $74,600. The maximum 2026 employee contribution is $4,230.45, and the corporation pays a matching employer amount.
  • CPP2. On earnings above $74,600 up to $85,000, a second additional contribution of 4% each applies to the employee and employer, to a maximum of $416 each for 2026.

The corporation pays the employer half of CPP, so on a salary you effectively fund both halves, just as a sole proprietor does. The difference is that the employer half is a deductible expense for the corporation.

What about EI?

EI usually does not apply to you. The CRA lists employment by a corporation of a person who controls more than 40% of the corporation's voting shares as not insurable, so EI premiums generally are not deducted. The CRA's guide also notes that employment between people who do not deal at arm's length (including related persons) may not be insurable. If you are unsure, the CRA offers a CPP/EI ruling service through My Business Account.

Step 3: Remit on time

Source deductions are remitted to the CRA on a set schedule. Most small employers are regular remitters, due by the 15th of the month after the month you paid the salary. New employers with monthly withholdings under $1,000 and a perfect compliance record can qualify for quarterly remitting, with due dates of April 15, July 15, October 15, and January 15.

Late remittance penalties start at 3% if you are 1 to 3 days late and reach 10% if you are more than 7 days late or remit nothing. As a director, you can also be personally liable for unremitted source deductions, so this is not a deadline to miss.

Step 4: Issue a T4 slip

After the calendar year ends, the corporation files a T4 slip and summary for your salary by the last day of February. If that date falls on a weekend or public holiday, the CRA treats the return as on time if it is received or postmarked by the next business day.

Payroll software can calculate deductions, track remittance dates, and file T4s for you, which removes most of the manual work even for a one-person payroll. See our guide to the best payroll software in Canada.

How does paying yourself dividends work?

A dividend is a payment of the corporation's after-tax profit to its shareholders. There is no payroll and nothing to remit when you pay it; the corporation declares the dividend (normally by a directors' resolution recorded in the minute book), pays it, and reports it on a T5 slip after year end.

Eligible vs other than eligible dividends

The CRA recognizes two kinds of taxable dividends, and they are taxed differently:

  • Eligible dividends are taxable dividends that the paying corporation designates as eligible. For a Canadian-controlled private corporation (CCPC), the capacity to pay eligible dividends generally comes from its general rate income pool (GRIP), which tracks income taxed at the general corporate rate rather than the small business rate.
  • Other than eligible dividends (often called non-eligible dividends) are the ones most small corporations pay, because their income is usually taxed at the small business rate. The federal small business rate is 9% on the first $500,000 of active business income, compared with a general federal rate of 15%.

The gross-up and dividend tax credit

When you receive a dividend, you do not simply add the cash to your income. You add a "grossed-up" amount, which approximates the pre-tax corporate income behind the dividend, and then claim a dividend tax credit that approximates the corporate tax already paid. According to the CRA's T5 guide:

  • Eligible dividends: grossed up by 38%. The federal dividend tax credit is 15.0198% of the grossed-up amount (6/11 of the gross-up).
  • Other than eligible dividends (paid in 2019 or later): grossed up by 15%. The federal dividend tax credit is 9.0301% of the grossed-up amount (9/13 of the gross-up).

Provinces and territories also have their own dividend tax credits, so the final personal tax on a dividend depends on where you live. Because the gross-up raises your reported net income, dividends can affect income-tested benefits and credits even when the tax itself is modest.

Reporting: the T5 slip and summary

The corporation reports dividends paid to you on a T5 slip (box 10 and 11 for other than eligible dividends, box 24 and 25 for eligible dividends) and files the T5 slips with a T5 summary by the last day of February following the calendar year the dividends were paid. You do not have to prepare a T5 slip for a recipient whose total for the year is less than $50.

How do salary and dividends affect your CPP pension?

Salary builds CPP; dividends do not. CPP contributions are based on pensionable earnings, and dividends are not pensionable earnings, so an owner who pays themselves only dividends makes no CPP contributions for that year.

That lowers your cash cost today, but it also means those years add nothing to your future CPP retirement pension and can affect eligibility for CPP disability benefits. Some owners are comfortable with that because they plan to save more on their own; others want the guaranteed, inflation-indexed pension. Either way, it is a trade-off to decide on purpose, not a free saving. The same logic applies to QPP in Quebec.

Do dividends create RRSP room?

No. Your RRSP deduction limit grows by 18% of your previous year's earned income, up to an annual dollar limit ($33,810 for 2026), minus any pension adjustment. The CRA's earned income calculation includes employment income, self-employment income, and certain other amounts. Dividends are not part of it.

So if you pay yourself a salary in 2026, it creates RRSP room you can use in 2027. If you pay yourself only dividends, you build no new RRSP room from that income. For owners who want to use an RRSP, this is one of the main reasons to take at least some salary.

Money left in the corporation can still be invested there, and some owners treat retained earnings as their retirement savings instead. How passive investment income inside a corporation is taxed is its own topic, and one to plan with an accountant.

Can you borrow money from your corporation instead?

You can, but a shareholder loan is not a way to avoid tax. Under subsection 15(2) of the Income Tax Act, a shareholder who receives a loan from their corporation (or incurs a debt to it) is generally required to include the amount in their personal income for the year, unless an exception applies.

The exception most owners rely on is in subsection 15(2.6). As the CRA's income tax folio on shareholder loans explains, 15(2) does not apply when:

  • the loan is repaid within one year after the end of the corporation's tax year in which the loan was made, and
  • the repayment is not part of a series of loans or other transactions and repayments.

For example, if your corporation's year end is December 31 and you take a loan from it in March 2026, the one-year window runs to December 31, 2027. Repaying the loan and then borrowing it straight back does not count as a genuine repayment.

If the loan is not repaid in time, the amount is added to your income for the year you received it, which may mean amending that year's return with interest. You can generally deduct it later when you do repay it. Low-interest or interest-free shareholder loans can also create a separate taxable benefit. There are other exceptions (for example, certain loans to shareholders who are also employees), and each one has conditions.

In practice, many owners end up with a shareholder loan without meaning to: personal expenses paid from the business account, or money taken out during the year without deciding whether it is salary or a dividend. Your accountant will usually clear this at year end by declaring a salary or dividend to cover it, which is why a separate corporate bank account and clean records matter.

Can you pay your spouse or children from your corporation?

Yes, but the rules differ depending on whether you pay them a salary or a dividend.

Salary to family members

A salary to a family member works like any other salary: payroll, source deductions, and a T4. The deduction has to be justified. The CRA's business expense guidance says you can deduct a salary paid to your child or spouse when you actually pay it, the work is necessary to earn business income, and the salary is reasonable, meaning it is what you would pay someone else for the same work. Keep time records and pay by traceable methods.

The CRA also notes that employment between related persons may not be insurable for EI, so check before deducting EI premiums.

Dividends to family members and TOSI

Paying dividends to family members who own shares used to be a common way to split income. The tax on split income (TOSI) rules now limit that. TOSI applies the highest marginal tax rate (33% federally) to "split income," which includes certain taxable dividends from a private corporation received by a family member from a related business.

There are exclusions. Based on the CRA's guidance, amounts are generally excluded when, for example:

  • the family member is at least 18 and actively engaged in the business on a regular, continuous, and substantial basis (the CRA treats an average of 20 hours or more per week during the part of the year the business operates as meeting this "excluded business" test), either this year or in any 5 previous years;
  • the family member is 25 or older and the amount is a reasonable return based on their contributions to the business, or it comes from "excluded shares" (which require, among other conditions, owning 10% or more of the corporation's shares by both votes and value, in a corporation that earns less than 90% of its business income from services and is not a professional corporation);
  • the amount would have been excluded for your spouse or common-law partner and they were 65 or older in the year.

The CRA's income sprinkling FAQ is explicit that TOSI does not apply to salary. That is one reason paying a family member a reasonable salary for real work is simpler to defend than paying them dividends. TOSI is technical, and the exclusions depend on age, involvement, and share structure, so review any family dividends with an accountant before you pay them.

How do owners usually decide on a mix?

There is no single right mix, and we are not going to give you one. As a matter of general practice, accountants often start by looking at a few questions:

  1. How much do you need to live on this year? Money you leave in the corporation is taxed at the lower corporate rate until it is paid out. Money you take out is taxed personally either way.
  2. Do you want RRSP room and CPP? If yes, some salary is needed, since dividends build neither.
  3. Can you handle payroll? Salary means monthly or quarterly remittances and T4s. Dividends mean a resolution and a T5.
  4. Will you need to show personal income? If you plan to apply for a mortgage or loan, ask the lender in advance how they assess income for incorporated owners.
  5. Are family members involved? Salary for real work is governed by reasonableness; dividends to family bring in TOSI.
  6. What province are you in? Personal tax rates and provincial dividend tax credits differ, which changes the numbers.

A common approach is some salary for RRSP room and CPP, with dividends on top, but the right proportions depend on your facts and change as rates and your income change. Revisit the decision each year before your corporation's year end, with your accountant.

Getting set up: a short checklist

If you have just incorporated, this is the order most owners work through:

  • Open a separate corporate bank account and run all business money through it. See the best business bank accounts in Canada.
  • Decide with your accountant whether you will take salary, dividends, or both this year.
  • If salary: register a payroll program account before your first remittance is due, set up payroll software or a provider, and calendar your remittance dates.
  • If dividends: record a directors' resolution for each dividend in the minute book, and file T5 slips by the end of February.
  • Track any money you take out that is not salary or a declared dividend as a shareholder loan, and plan to clear it within the 15(2.6) window.
  • Keep your books current so year-end decisions are based on real numbers. See the best accounting software in Canada.

Frequently asked questions

Is it better to pay yourself salary or dividends in Canada?

Neither is better in every case. Salary creates RRSP room and CPP pensionable earnings and is a deductible expense for the corporation, but it requires payroll. Dividends need no payroll and are taxed at lower personal rates to reflect corporate tax already paid, but they build no RRSP room or CPP. An accountant can model the mix for your province and income.

Can I pay myself only dividends from my corporation?

Yes, and many owners do. You will not make CPP contributions on dividends, which lowers your future CPP retirement pension, and dividends are not earned income for RRSP purposes, so you will not build new RRSP room from them.

Do I need a payroll account to pay myself a salary?

Yes. The CRA says you need a payroll program account if you pay salaries or wages, and you must register before your first remittance is due. You then withhold income tax and CPP, remit to the CRA, and issue yourself a T4 slip by the last day of February.

Do I pay EI on my own salary from my corporation?

Usually not. The CRA lists employment by a corporation of a person who controls more than 40% of its voting shares as not insurable, so EI premiums are generally not deducted. CPP still applies to the salary.

Can I just take money out of my corporation's bank account?

Money you take out without declaring it as salary or a dividend is usually recorded as a shareholder loan. If it is not repaid within one year after the end of the corporation's tax year in which you took it, it is generally included in your personal income under subsection 15(2), subject to exceptions.

Can I pay my spouse or kids from my corporation?

You can pay family members a salary for real work at a reasonable rate, which the CRA says should be what you would pay someone else. Dividends to family members can be caught by the tax on split income (TOSI) rules, which apply the top tax rate unless an exclusion applies.

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