Introduction
The salary vs. dividend question is one that every incorporated professional revisits annually. The answer changes as CRA rates, provincial surtax thresholds, CPP maximums, and dividend tax credits are adjusted each year. This article lays out the comparison at current 2026 Ontario rates, so the decision reflects this year's numbers — not last year's.
The Three Options
Salary: Employment income drawn from the corporation. Deductible to the corporation. Generates RRSP room. Triggers CPP contributions (employee and employer portions, both effectively borne by the owner). Taxed at personal marginal rates on the T1.
Bonus (accrued): Functionally similar to salary — it is employment income. The key distinction is timing: a bonus can be accrued at fiscal year end and paid within 180 days, creating a corporate deduction in the fiscal year while the personal income recognition may fall in the following calendar year. Otherwise, the same CPP, RRSP, and personal tax treatment applies.
Eligible dividend: Paid from income that has been taxed at the general corporate rate (not the small business rate). Taxed personally at the eligible dividend rate — enhanced gross-up and tax credit system. In Ontario in 2026, the top marginal rate on eligible dividends is approximately 39.34%.
Non-eligible dividend: Paid from income that has been taxed at the small business rate. Taxed personally at the non-eligible dividend rate — lower gross-up and tax credit. In Ontario in 2026, the top marginal rate on non-eligible dividends is approximately 47.74%.
The Integration Principle in Practice
The Canadian tax system is designed so that, in theory, the total tax paid on corporate income plus personal dividends equals the personal marginal rate that would have applied if the income had been earned directly. This is integration.
In practice, integration is not perfect. At certain income levels and with certain types of income, salary produces a slightly better overall outcome than dividends; at others, dividends are marginally better. The gap is small at any given income level — but the RRSP room and CPP implications of salary vs. dividends are not small.
The key differentiators that tilt the decision:
Salary wins when: The owner wants RRSP room. The owner has insufficient CPP contributions from prior years and values CPP retirement income. The owner's personal income is well below the top marginal bracket. The corporation's income exceeds the SBD limit and would be taxed at the general rate anyway.
Dividends win when: The owner has maxed out RRSP room and CPP contributions. The corporation has significant retained earnings taxed at the small business rate and RDTOH balances that need to be drawn down. The owner's spouse has low personal income and can receive non-eligible dividends at a low effective rate (subject to TOSI).
The Bonus Strategy and Why It Matters
A bonus accrued at fiscal year end and paid within 180 days is deducted in the fiscal year in which it is accrued — but the employee reports it as income in the calendar year in which it is paid. For a corporation with a non-December fiscal year end, this creates a legitimate timing deferral.
For a corporation with a January 31 fiscal year end: a $150,000 bonus accrued on January 31, 2026 is a deduction in the fiscal year ending January 2026. If paid in July 2026, it is personal income in the 2026 calendar year — same year, but the cash left the corporation six months later. For a December 31 year end, a December 31 bonus paid in June 2027 is personal income in 2027 — a full year's deferral.
A Simple 2026 Ontario Rate Comparison
For an incorporated professional considering a $100,000 distribution from their corporation (active income at the small business rate):
Method | Corporate Tax | Personal Tax | Total Tax | Net After-Tax
Non-eligible dividend | ~$12,200 | ~$23,700* | ~$35,900 | ~$64,100
Salary (at ~$100K bracket) | $0 | ~$29,650 | ~$29,650** | ~$70,350
Salary + RRSP contribution | $0 | ~$10,950 | ~$10,950* | ~$89,050
*Approximate, based on Ontario non-eligible dividend rates at ~$100K total income.
**Salary deduction reduces corporate tax but creates personal tax — simplified illustration.
***With a $29,500 RRSP contribution offsetting the personal tax; net cost depends on future withdrawal rate.
This table is illustrative — the actual numbers depend on the owner's total income, other deductions, and the corporation's specific tax position. The CPA's job is to run this analysis with real numbers.
When to Speak With a CPA
The salary/bonus/dividend decision should be made annually, before the fiscal year closes, with current-year income estimates in hand. The right answer at $200,000 of corporate income is different from the answer at $400,000 or $800,000. A CPA who runs this analysis with your actual numbers — not a generic table — produces a meaningfully better outcome.
Rotaru CPA runs the salary vs. dividend analysis for incorporated clients as part of annual year-end planning. Book a consultation to review your compensation mix for 2026.