Deciding whether to pay yourself a salary, dividends, or both is one of the most important tax and financial decisions you make each year.

This choice directly affects:

• Personal and corporate tax
• CPP contributions and future benefits
• RRSP contribution room
• Mortgage and loan approvals
• Childcare expense deductions
• Long-term retirement planning

This decision should be reviewed annually, not at the last minute.

At Momentum Accounting CPA Professional Corporation, we help incorporated professionals across Hamilton, Toronto, and Ontario design tax-efficient, CRA-compliant compensation strategies for 2025.

Salary vs Dividends: Key Differences

Salary (Employment Income)

• Requires CRA payroll account and remittances
• Deductible to the corporation
• Generates CPP contributions
• Creates RRSP room
• Preferred by lenders for mortgages
• Reported on T4

Dividends (Investment Income)

• No payroll or CPP required
• Paid from retained earnings
• Often lower combined tax
• No RRSP room
• More flexible timing
• Reported on T5

When Salary Makes Sense

Salary is often beneficial when you want to:

• Build CPP retirement and disability protection
• Create RRSP contribution room
• Claim childcare expenses
• Strengthen mortgage or loan applications
• Maintain predictable income

When Dividends Make Sense

Dividends may be preferable when you want:

• Lower combined tax in certain income ranges
• Flexible withdrawals
• Reduced administration
• To retain profits inside the corporation

Why a Combined Salary + Dividend Strategy Is Often Best

Most incorporated professionals benefit from a mixed approach:

• Base salary → CPP, RRSP room, lender support
• Dividends → tax efficiency and flexibility

This balance is adjusted yearly based on income, family needs, and tax rules.

Common Mistakes to Avoid

• Paying salary without payroll remittances
• Paying dividends without retained earnings
• Ignoring CPP and RRSP long-term impact
• Leaving compensation plans unchanged for years

Key Takeaways

• Salary supports CPP, RRSPs, childcare, and mortgages
• Dividends offer flexibility and potential tax savings
• A combined approach often delivers the best outcome
• Annual planning reduces tax, risk, and surprises

How Momentum Accounting CPA Professional Corporation Can Help

We help incorporated professionals in Hamilton, Toronto, Ontario and across Canada:

• Optimize salary vs dividend decisions
• Stay CRA-compliant
• Reduce taxes responsibly
• Plan for retirement and financing

📧 info@momentumaccountingcpa.ca

📞 647-717-1242



✅ FAQ SCHEMA

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FAQ 1: Is salary or dividends better in Canada for 2025?

There is no single best option. Salary provides CPP and RRSP room, while dividends often reduce combined tax. Most incorporated professionals benefit from a mix of both.

FAQ 2: Do dividends create RRSP room in Canada?

No. Only salary (earned income) creates RRSP contribution room. Dividends do not.

FAQ 3: Do dividends require CPP contributions?

No. CPP contributions apply only to salary, not dividends.

FAQ 4: Are dividends better for tax than salary?

Dividends can be more tax-efficient in some cases, but they do not support CPP, RRSPs, or mortgage qualification.

FAQ 5: Can I pay myself dividends if my corporation has a loss?

No. Dividends must be paid from positive retained earnings and meet corporate solvency requirements.

FAQ 6: Should I review my salary and dividend mix every year?

Yes. Your compensation strategy should be reviewed annually, especially when income, family needs, or tax rules change.