RRSP room
New room each year is 18% of the previous year's earned income, up to $33,810 for 2026 and $35,390 for 2027, less any pension adjustment. Dividends aren't earned income. See our RRSP deadline guide.
Paying Yourself
Salary vs Dividends: How Ontario Owners Decide in 2026
Neither one is better for everyone. Integration keeps total tax roughly similar, so the choice usually turns on what each one creates or costs: RRSP room, CPP, pension options, mortgage income and family rules.
The Short Answer
Should an Ontario owner take salary or dividends?
There's no single right answer. The tax system is built so total tax is roughly similar either way, so the real differences lie in what salary creates and what dividends avoid. Many owners use a mix, and your accountant should review it each year.
Salary is deducted by the corporation and taxed to you as employment income. A dividend is paid from profit the corporation has already paid tax on, and you receive a dividend tax credit for part of that tax.
At a glance
- SalaryDeductible to the corporation, taxed as employment income
- DividendsNot deductible, taxed with a gross-up and a credit
- Total taxRoughly similar by design, never identical
- Ontario small business rate11.2% combined as of July 1, 2026
Integration
What is integration, in plain language?
Integration is the idea that income should bear about the same total tax whether you earn it personally or earn it through a corporation and take it out as a dividend.
It works through a gross-up and a credit. For 2026, a non-eligible dividend is grossed up by 15% and an eligible dividend by 38%, which approximates the company's pre-tax income. The dividend tax credit then stands in for corporate tax already paid.
Income taxed at Ontario's 11.2% combined small business rate generally supports non-eligible dividends, and income taxed at the 26.5% general rate generally supports eligible dividends.
A change for 2027
Ontario cut its small business rate on July 1, 2026. To match, its dividend tax credit on non-eligible dividends falls from 2.9863% to 1.9863% on January 1, 2027, so the same dividend carries more personal tax in 2027 than in 2026. Whether that affects your timing is a question for your accountant.
Side by Side
How do salary and dividends compare?
A general comparison for 2026. Your result depends on your income, family and plans.
| Salary | Dividends | |
|---|---|---|
| RRSP room | Creates room | Creates none |
| CPP | Contributions required, builds CPP credits | No contributions, no credits |
| EI | Generally not insurable above 40% of voting shares | Not applicable |
| IPP | Pension room based on T4 salary | Creates no pension room |
| Mortgage | Steady T4 income is often simpler to show | Treatment varies by lender |
| Child care deduction | Counts as earned income | Doesn't count |
| Paperwork | Payroll account, remittances, T4 | Directors' resolution, T5 |
The Trade-Offs
What does each choice change?
Any one of these can tip the decision.
CPP
In 2026, you and the corporation each pay 5.95% on earnings between $3,500 and $74,600, then 4% up to $85,000. You effectively fund both sides, up to $9,292.90, and build CPP benefits. Dividends involve no contributions.
EI
If you control more than 40% of the voting shares, your employment generally isn't insurable, so there are no premiums and no regular EI benefits. You can opt in to EI special benefits, as our disability insurance page explains.
IPP eligibility
Pension room in an Individual Pension Plan comes from T4 salary, and dividends don't count. If you may want an IPP, usually from about age 40, your salary history matters.
Mortgage qualification
Lenders must verify income and weigh its stability, and self-employed borrowers are usually asked for two years of notices of assessment. A steady salary is often simpler to show than varying dividends, but each lender sets its own approach, so ask yours before changing your pay ahead of an application.
Child care deduction
The deduction is generally claimed by the lower-income spouse and capped at two-thirds of that person's earned income. Dividends aren't earned income here, so a spouse paid only dividends may have little or no claim.
2026 Personal Tax
How do the 2026 tax brackets affect your pay?
Salary and dividends both land on your personal return, and each rate applies only to income inside that bracket.
The rates below apply to regular income such as salary, before credits. Ontario's surtax is added on top, and the top combined rate is above 50%. Dividends are taxed differently because of the gross-up and credit.
| Federal income | Rate | Ontario income | Rate |
|---|---|---|---|
| Up to $58,523 | 14% | Up to $53,891 | 5.05% |
| $58,523 to $117,045 | 20.5% | $53,891 to $107,785 | 9.15% |
| $117,045 to $181,440 | 26% | $107,785 to $150,000 | 11.16% |
| $181,440 to $258,482 | 29% | $150,000 to $220,000 | 12.16% |
| Over $258,482 | 33% | Over $220,000 | 13.16% |
Leaving money in the company
This defers personal tax rather than removing it, and investing the money there can bring the $50,000 passive income rule into play. Our guide to retained earnings compares the options.
Family Members
Can you pay dividends to your spouse or adult children?
Sometimes, but the tax on split income (TOSI) rules can tax those dividends at the top personal rate. The main exclusions generally cover:
- Family who work in the businessAn average of 20 hours a week, this year or in any five earlier years
- Shareholders 25 or olderWith 10% or more of votes and value, in a corporation that isn't a professional corporation and earns less than 90% of its business income from services
- A spouse of an older ownerGenerally from the year the owner turns 65
- A reasonable returnFor adults 25 or older, based on work, capital, risk and past payments
Salary is a separate test: the work has to be real and the pay reasonable. Professional corporations have their own limits.
Who It Fits
Who should review this closely?
- Owners around 40 or olderWeighing an IPP against an RRSP
- Anyone buying or refinancingWithin the next year or two
- FamiliesWith child care costs, or relatives as shareholders
What to Weigh First
The trade-offs
Salary costs more today
CPP goes out now, and that cash leaves the company.
Dividends can leave gaps
No RRSP room, CPP credits or pension room, so retirement needs another plan.
How We Work With Your Accountant
Your accountant leads the tax side
We don't prepare tax returns or tax opinions. We handle the pension and insurance questions your pay raises.
Your accountant sets the mix
They run the numbers and confirm the tax.
We cover our side
IPP illustrations and the coverage your plans call for.
You review it yearly
New income, family needs or tax rules can change the answer.
Common Questions
Questions owners ask about salary and dividends
Neither is better for everyone. Total tax is designed to be roughly similar, so the decision usually turns on RRSP room, CPP, pension plans, mortgage plans and family circumstances.
Generally yes, if you're a shareholder and the corporation meets Ontario's solvency tests for dividends. That income builds no RRSP room, CPP credits or pension room.
No. A dividend is a return on your shares, not pay for work, so no CPP contributions or EI premiums apply, and it earns no CPP credit.
For the 2027 limit of $35,390, about $196,600 of earned income in 2026, before any pension adjustment.
Ontario's credit on non-eligible dividends falls from 2.9863% to 1.9863% on January 1, 2027, which raises the personal tax on them. The Ontario credit on eligible dividends stays at 10%.
Related Guides
Strategies that often work together
Individual Pension Plan (IPP)
A corporate-funded pension that can allow larger contributions than an RRSP for owners on salary.
Read the guideUsing Retained Earnings
Three ways to use your corporation's surplus, and the tax cost of each.
Read the guideHolding Company Planning
What a holding company does, and when it isn't worth the cost.
Read the guideThis information is general in nature and is not tax, legal, accounting, insurance or investment advice. It is based on current Canadian tax legislation, which can change. Any strategy should be designed and reviewed with your accountant and legal advisors based on your circumstances. Figures are for 2026 unless stated, and tax rates are approximate.
Salary and dividend planning in Burlington, Oakville, Milton, Mississauga and Hamilton
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