Should You Pay Yourself Dividends or a Salary From Your Corporation?

This is a question that gets asked a lot, but the answer depends on your personal circumstances. When you are paying yourself a salary, you are required to pay into the Canada Pension Plan which will allow you to collect a monthly cheque when you are old enough to start receiving a pension. You also have to deduct income tax and EI premiums from every employee’s pay cheque, so that can add to your paperwork. If you don’t want to be bothered with that, you can get your accountant to do your payroll for you. Paying yourself a salary also helps to add to your RRSP contribution limit so that you can continue to contribute a certain amount of money towards that every year.

Dividends are much simpler to administer since all you really need to do is write yourself a cheque and make a note that it was a dividend payment. Dividends are treated differently for tax purposes so you have the potential to save some money, but you might be missing out on the Canada Pension Plan if you never pay into it. Watch the video below for a more detailed explanation of salaries and dividends.