How you pay yourself is one of the most important tax decisions you make every year
Salary and dividends are not interchangeable. Each carries different tax treatment, different implications for CPP contributions and RRSP room, and different long-term consequences. We help incorporated Canadians structure their compensation to maximize what they keep, not just what clears the account.
Every incorporated owner already has a compensation strategy. The question is whether it is working.
Many incorporated business owners default to the same approach year after year, often because it was set up once and never revisited. What worked when the business was doing $500,000 a year looks very different at $2 million or $5 million. The structure you have today is costing or saving you money every year. Knowing which requires a proper review.
When did you last have your compensation structure properly reviewed?
If the answer is “when we incorporated,” or if you are not sure, that is the answer. Let us look at what your current approach is costing you.
What changes when your compensation is structured properly
The right compensation mix reduces your combined corporate and personal tax burden, often materially. Small structural changes applied consistently compound over years.
Most owner compensation planning opportunities are only available before your fiscal year closes. We review your position in advance and act while options still exist.
The right salary vs dividends split is not just about this year’s tax bill. It affects your RRSP room, CPP entitlement, and retirement planning. We account for all of it.
What works at one income level may not work at another. We adjust your shareholder compensation approach as your business performance changes so your strategy stays efficient year over year.
Every recommendation is grounded in CRA regulations, including TOSI rules, passive income thresholds, and SBD eligibility. No aggressive structures. No avoidable risk.
You understand exactly what you are taking, why it is structured that way, and how it affects your tax. No surprises when your returns are prepared.
Owner compensation planning works best as part of a connected financial picture
A CFO connects your compensation decisions to your cash flow, profitability, and long-term financial plan, not just your annual tax return.
Compensation strategy and corporate tax planning are inseparable. We manage both together so every decision accounts for the full picture.
How you have been compensated in the years leading up to a sale can affect your lifetime capital gains exemption eligibility. Planning early matters.
Questions About Owner compensation planning
Owner compensation planning is the process of deciding how you pay yourself from your corporation in the most tax-efficient way. As an incorporated Canadian business owner, you can pay yourself salary, dividends, or a combination. Each method has different tax implications at both the corporate and personal level, different effects on your RRSP contribution room, and different consequences for CPP. Without a plan, most owners default to an approach that was set up once and never reviewed.
Salary is employment income. It is deductible to the corporation, taxed at personal rates, and generates CPP contributions and RRSP contribution room. Dividends are paid from after-tax corporate profits, taxed differently at the personal level through the dividend tax credit, and do not generate CPP or RRSP room. Neither is universally better. The right choice in the salary vs dividends decision depends on your specific income level, tax bracket, and long-term financial goals.
No. The optimal shareholder compensation split depends on your corporate income level, personal tax bracket, province of residence, and long-term retirement goals. We model the actual numbers for your situation rather than applying a generic rule.
Only earned income, including salary, generates RRSP contribution room at 18 percent of prior year earned income up to the annual maximum. Dividends do not qualify as earned income for RRSP purposes. This is a meaningful factor in the salary vs dividends decision if retirement savings are part of your long-term plan.
Income splitting involves directing income to family members who are in lower tax brackets in order to reduce the overall family tax burden. In Canada, the Tax on Split Income rules, known as TOSI, restrict how income splitting can be applied to adult family members of private corporations. We advise on legitimate income splitting strategies that comply fully with CRA requirements.
Annually, ideally before year-end while options are still available. Additionally, whenever your corporate income changes significantly, you make a major personal financial decision, or you are planning an eventual transition or sale of the business.
Yes. For owner-managed businesses, we treat corporate and personal tax as a connected system, because they are. The decisions we recommend account for the full picture.
Ready to take control of how you pay yourself?
Once your fiscal year closes, your compensation options for that year close with it. The right time to review your structure is now.
