Salary vs. Dividend - Does it really matter?

Have you ever wondered what the difference between a salary and a dividend is?

The Canadian Tax System is designed so that an individual should be indifferent between earning a salary versus a dividend from a corporation.

Attached are examples of the after tax dollar for the individual when paying a Salary versus paying a Dividend.

Examples of comparative charts between Salary vs. Dividend

Some of the key points of Salary are as follows:

• Potential to reduce corporate taxable income of a corporation if they exceed the Small Business Deduction Limit thus not paying tax at higher corporate tax rates.
• Tax withholdings required in the corporation including potentially an employer portion of CPP and EI. The tax withholdings are required to be remitted regularly each month/quarter.
• Creates RRSP contribution room to plan for retirement.

Some key points for Dividends are as follows:

• May require quarterly personal tax installments depending on amount paid each year and the personal tax payable
• Dividends are simple and can be withdrawn at any time
• Dividends do not affect taxable income of the corporation

There are tax planning opportunities that may make dividends or salaries preferable in specific circumstances.

Please see for more details.

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