As a business owner, one of the biggest year-end questions is simple
How should I pay myself: salary, dividends, or both?
It’s not just about taking money out of your company. It’s about how to do it strategically, to balance personal income, taxes, and long-term benefits like CPP and RRSP room.
With new inflation adjustments and evolving tax thresholds in 2025, it’s more important than ever to get the mix right.
Let’s break down what matters and how to plan for it.
1.Understanding Salary vs. Dividends
Salary is employment income paid to you by your corporation.
Dividends are profit distributions paid to shareholders after tax.
While both get you paid, they impact taxes, benefits, and cash flow differently.
| Factor | Salary | Dividends |
|---|---|---|
| Tax Deductible to Corporation? | ✅ Yes | ❌ No |
| CPP Contributions? | ✅ Required | ❌ Not applicable |
| Creates RRSP Room? | ✅ Yes | ❌ No |
| Eligible for Personal Tax Credits? | ✅ Yes | Limited |
| Taxed as | Employment income | Investment income |
| Cash Flow Impact | Regular, predictable | Flexible, based on profits |
Key takeaway:
Salary builds future benefits (CPP, RRSPs) but increases payroll costs.
Dividends reduce admin burden and can be tax-efficient, but you sacrifice some long-term perks.
2. Planning the Right Mix for 2025
There’s no universal “best option.” The right blend depends on your goals, corporate structure, and cash flow needs.
Here’s how to think about your 2025 mix strategically:
💰 If You Want Steady Income & RRSP Room, Lean Salary
A reasonable salary ensures consistent cash flow, generates RRSP contribution room (18% of earned income, up to the annual limit), and maintains CPP contributions toward retirement.
Example:
Earning a $70,000 salary creates about $12,600 in RRSP room next year. That’s tax-deferral power you lose if you take only dividends.
🏦 If You Want Flexibility & Simplicity, Use Dividends
Dividends are easier to manage and can be declared at any time, offering flexibility when profits fluctuate.
They also help avoid CPP costs (both employer and employee portions), freeing up corporate cash, but keep in mind, you’ll lose RRSP room.
⚖️ If You Want the Best of Both Worlds, Blend Them
Many successful owners choose a hybrid approach:
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Pay yourself a modest salary (to keep RRSP and CPP benefits).
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Take the rest as dividends (for flexibility and efficiency).
This blend often reduces combined personal + corporate taxes while maintaining long-term savings benefits.
3. CPP, RRSP, and Tax Efficiency: The 2025 Balancing Act
CPP (Canada Pension Plan):
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Required for salary, not for dividends.
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Costs both employer and employee portions (~11% combined in 2025).
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But also builds retirement income, CPP can pay over $16,000 annually in retirement for consistent contributors.
RRSP Room:
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Only created through earned income (salary or self-employment).
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2025 RRSP limit = 18% of income up to $32,490.
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If you rely solely on dividends, you’ll lose this room, and future tax-deferral opportunities.
Tax Efficiency:
In 2025, the combined federal + Ontario small business tax rate remains competitive (~12.2%).
The right balance ensures you’re not overpaying on either side, personal or corporate.
Example:
A $100,000 salary may generate the same personal cash after tax as a $75,000 dividend, but with added CPP and RRSP benefits.
It’s not about the short-term math, it’s about long-term wealth building.
4. Common Mistakes to Avoid
❌ Taking only dividends year after year, and missing years of CPP and RRSP room.
❌ Paying excessive salary that triggers unnecessary CPP or higher personal tax brackets.
❌ Forgetting to consider corporate retained earnings and income splitting with family shareholders.
5. How INDep Helps Business Owners Get It Right
Every business owner’s situation is unique — and that’s where INDep Accounting brings clarity.
We analyze your full financial picture:
✔ Personal and corporate tax brackets
✔ RRSP contribution potential
✔ CPP optimization
✔ Future dividend strategies for retirement
From there, we build a custom salary/dividend plan that maximizes after-tax income and preserves long-term benefits.
💼 Whether you’re drawing from your first profitable year or managing established corporate wealth, we make sure every dollar serves your goals — not the CRA’s.
Ready to Keep More of What’s Yours?
Don’t leave money on the table this year.
👉 Book a Year-End Tax Review to make sure every dollar is working in your favour.
We’ll walk through your situation, highlight deductions you might be missing, and help you plan for 2026.
💬 Referral Reminder
Do you know someone who could benefit from this kind of clarity?
Refer them to INDep Accounting and get 5% off your next return once they become a client.
Because good advice, and good results, are worth sharing.
