Once you're incorporated, one of the recurring questions is how to actually pay yourself — salary, dividends, or some combination. There's no single right answer, but the mechanics of each are worth understanding before deciding.
Salary
Salary is treated as a business expense, which reduces the corporation's taxable income. It's subject to payroll deductions — CPP contributions and income tax withheld at source — and it creates RRSP contribution room and pensionable earnings, which matters if retirement savings room is a priority.
Dividends
Dividends are paid out of after-tax corporate income, so there's no payroll deduction and no CPP contribution involved, which can mean less administrative overhead. They don't create RRSP room, and they're taxed differently in your hands than employment income, via the dividend tax credit system.
Why most owners use both
In practice, many owner-managers use a blend — enough salary to build meaningful RRSP room and cover any personal financing needs that require provable employment income, with dividends layered on top. The right mix depends on your personal cash needs, your retirement savings plans, and your corporation's overall tax position for the year — which is exactly the kind of decision worth revisiting annually rather than setting once and forgetting.