Salary or dividends: what each one actually costs a BC business owner

When you own an incorporated business or professional practice in British Columbia or Ontario, one of the recurring annual decisions is how to pay yourself: salary, dividends, or a thoughtful mix of both.

Paying a salary creates RRSP contribution room, contributes to the Canada Pension Plan (CPP), and is a deductible expense for your corporation. Dividends, on the other hand, are paid out of after-tax corporate retained earnings and do not require payroll remittances or CPP contributions.

The right combination depends on your household cash-flow needs, your corporate active business income, and how you plan to build passive retirement income both inside and outside your corporation.