There is no universal answer to the salary-versus-dividend question, but there is a reliable way to reach the right answer for you. It starts with how much you actually need to live on, and ends with how much you want to keep inside the corporation.
Salary creates RRSP contribution room and CPP entitlement, and it is deductible to the corporation. Dividends avoid CPP and are simpler to administer, but create no RRSP room and can leave more income inside the company, where passive-income rules may erode the small business deduction.
For most owner-managers we model a blend: enough salary to make use of RRSP room and personal credits, with dividends making up the rest. The right mix shifts each year as rates, CPP limits and your own plans change.
The practical point: revisit the decision in the autumn, not in April. By April, the year has already been decided.
This article is general information, not advice for your specific situation. Please speak with a Ledgex CPA before acting on it.
