How might salary and dividends compare?

There is no universal answer. Salary creates earned income and RRSP room and generally requires CPP/QPP payroll contributions, while dividends are paid from after-corporate-tax income and are taxed personally under the dividend gross-up and credit system.

Canada’s tax system aims for a degree of integration between corporate and personal tax, but the result varies by province, corporate income type, dividend type and personal circumstances. CPP/QPP, RRSP room and benefits should be considered in addition to immediate tax.

Dividends are generally not pensionable employment earnings for CPP/QPP purposes, so they do not create the same CPP/QPP contributions as salary. They also generally do not create RRSP earned income.

Salary and other eligible earned income can generate future RRSP contribution room, subject to the normal formula and annual maximum. Dividends generally do not generate RRSP contribution room.

Yes. Many incorporated business owners use a combination, depending on cash needs, tax planning, RRSP goals, CPP/QPP preferences and corporate circumstances.