Introduction

A dentist whose professional corporation earns $250,000 of net annual income — after overhead, staff wages, lab fees, and lease costs — is at a level where incorporation provides meaningful tax deferral, RRSP room is worth maintaining, and the compensation structure rewards deliberate planning.

This is the income level at which many dentists settle in their first five to seven years of ownership. The planning decisions made here — consistently, year after year — have a compounding effect that becomes visible by year ten.

The Corporation's Starting Position

On $250,000 of net active income, the dental corporation pays the small business deduction rate — approximately 12.2% combined in Ontario in 2026 — on the full amount. Corporate tax: approximately $30,500. After-tax retained corporate income: approximately $219,500.

The question is how much to distribute personally and in what form.

The Compensation Decision at $250,000

Option A — Salary of $90,000, retain $160,000

Personal tax on $90,000 of salary (Ontario): approximately $22,800. CPP contributions (employee + employer, both borne by the corporation): approximately $7,735. RRSP room generated: $16,200 (18% × $90,000).

Net personal income after CPP and tax: approximately $59,500. Corporate retention after corporate tax and salary/CPP payments: approximately $131,000.

Option B — Salary of $150,000, retain $100,000

Personal tax on $150,000: approximately $44,000. CPP: approximately $7,735. RRSP room: approximately $27,000 (approaching but not reaching the 2026 limit of $32,490).

This option generates more RRSP room and more CPP entitlement but distributes a larger fraction of the corporation's income personally.

Option C — Salary of $0, dividends of $80,000, retain $170,000

No CPP cost. No RRSP room. Personal tax on $80,000 of non-eligible dividends in Ontario: approximately $19,900.

What Makes Sense at $250,000

For a dentist in their early ownership years — where retirement is twenty-plus years away and the primary goal is accumulating wealth inside the corporation — a salary of approximately $80,000–$100,000 provides:

A manageable personal income level (sufficient for living expenses without drawing excessively)

RRSP room of $14,400–$18,000 per year — meaningful, fundable from the salary

CPP contributions that will matter in retirement

A corporate retention of $120,000–$140,000 per year that compounds at the corporate small business rate

This profile — modest salary, maximum RRSP contribution, balance retained — is the foundation of the corporate wealth accumulation model for dentists at this income level.

The RRSP Contribution Timing

Generating RRSP room through salary is only useful if the RRSP contribution is actually made. Dentists who pay themselves salary to create room but never get around to contributing forfeit the compounding benefit of the deferred investment. The RRSP contribution should be planned as part of the same year-end conversation as the salary decision — not as an afterthought in February.

The Five-Year Forward View

A dentist earning $250,000 consistently, retaining $120,000–$140,000 in the corporation annually, will have accumulated $600,000–$700,000 in corporate retained earnings after five years. At that point, the annual passive income on those investments may approach the $50,000 AAII threshold — and the holdco conversation begins. Starting that planning conversation at year three, not year six, produces better outcomes.

When to Speak With a CPA

At $250,000, the annual planning value from getting the salary/dividend/RRSP decision right is approximately $8,000–$15,000 per year in reduced total tax. Over ten years, that difference compounds significantly. The plan should be set before the fiscal year closes — not reconstructed when the T2 is filed.

Rotaru CPA works with dentists at every income level on compensation planning and corporate tax strategy. Book a consultation to review your dental corporation's position.