If you’re a small business owner in Alberta and have incorporated — or are thinking about it — one of the most common (and important) questions is:
“How should I pay myself — through salary or dividends?”
Choosing the right method can affect your personal taxes, corporate taxes, CPP contributions, and even your RRSP limits or mortgage eligibility. This post breaks it all down for you.
Why This Matters
When you incorporate your business in Canada, you and your corporation become separate legal entities. That means money earned by the business doesn’t automatically become your income — you need to take it out strategically.
The two main ways to pay yourself:
- Salary (or wages)
- Dividends (corporate profit distribution)
Each has advantages, trade-offs, and tax consequences. Let’s dive in!
Option 1: Paying Yourself a Salary
A salary is considered earned income. It’s paid like a regular employee wage and is subject to income tax, CPP, and payroll deductions.
Pros of Salary:
- Earns RRSP contribution room (18% of your salary, up to the annual limit)
- CPP contributions increase retirement benefits
- Provides proof of income for loans/mortgages
- Reduces your corporation’s taxable income (salary is a deductible business expense)
Cons of Salary:
- You (and your company) must pay CPP contributions — a cost to both sides
- Requires payroll registration, T4 filing, and source deductions
- Slightly more admin and accounting complexity
When Salary Makes Sense:
- You want to maximize RRSP contributions
- You’re planning to apply for a mortgage or loan soon
- Your business has steady cash flow and can afford regular payroll
Option 2: Paying Yourself Dividends
A dividend is a distribution of after-tax corporate profits to shareholders. It’s not treated as employment income and doesn’t require CPP contributions or payroll setup.
Pros of Dividends:
- Simpler to issue: no payroll or T4s — just a T5 slip at year-end
- No CPP to pay (lower cost overall)
- Flexibility in timing — you can declare dividends as needed
- Potential for tax savings with proper planning (dividends are taxed at a lower rate due to the dividend tax credit)
Cons of Dividends:
- Doesn’t create RRSP contribution room
- No CPP contributions = no retirement pension buildup
- Financial institutions may prefer salary for income verification
- Must ensure your corporation has after-tax retained earnings
When Dividends Make Sense:
- You’re not concerned with CPP or RRSP contributions
- You want flexibility and simplicity
- Your business has accumulated after-tax profits
What About a Mix of Both?
In many cases, the best approach is a combination of salary and dividends, tailored to your income needs, retirement plans, and corporate profitability.
At Kalim CPA, we help Alberta business owners:
- Create a custom compensation strategy
- Balance tax efficiency with personal financial goals
- Maintain CRA compliance with T4 and T5 reporting
Salary vs Dividend Comparison Chart
| Feature | Salary | Dividends |
|---|---|---|
| Tax Deductible for Corporation |  Yes |  No |
| Creates RRSP Contribution Room | Yes | No |
| Requires Payroll Registration | Yes | No |
| CPP Contributions Required | Yes (both employer/employee) | No |
| Flexibility of Timing | Less flexible | More flexible |
| Simpler Reporting | Requires T4 and remittances | Just a T5 at year-end |
| Mortgage/Loan Qualification | Preferred by lenders | May require explanation |
Common Mistakes to Avoid
- Not planning ahead: Waiting until year-end to decide can cause missed RRSP opportunities or higher tax bills
- Ignoring CPP: While skipping CPP may seem like a savings, it could reduce future retirement income
- Mixing personal and corporate finances: Always document dividends or salary properly to avoid CRA scrutiny
- Skipping proper reporting: All payments to shareholders must be reported (T4s for salary, T5s for dividends)
Pro Tip: Review Annually
Your ideal strategy may change as your business grows, your income changes, or tax laws evolve. We recommend reviewing your compensation approach every year — ideally before your fiscal year-end.
Need Help Deciding?
At Kalim CPA, we work with Alberta-based incorporated business owners to:
- Compare salary vs dividend strategies
- Run tax projections
- Optimize for RRSPs, CPP, and personal financial goals
- Stay compliant with CRA and reduce tax exposure
Book a free consultation today to explore the best way to pay yourself.
Let’s make sure your business income works for you — not against you.
