Advantages of Salary vs Dividends

We recommend incorporated small-business owners look at the advantages of salary v.s. dividends. Based on our experience, many shareholders of small-businesses do not think to take part of their pay in dividends to take advantage of their lower tax rates. Depending on where they live, they can earn somewhere between $30 000 – $40 000 in net dividend income before they start paying taxes. The downside of dividends is that they are not eligible for CPP, nor are they counted as an eligible amount for RRSP contributions; salary counts as earned income, whereas dividends do not.

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