Salary
Salary is employment income. The corporation deducts it; you report it on your T1. It creates RRSP room, builds CPP, requires source deductions and gives you a T4 that lenders understand.
Consider it if you want RRSP room or CPP, need documented income for a mortgage, or prefer regular pay with tax already withheld.
Dividends
Dividends are paid from after-tax corporate profit. There is no RRSP room, no CPP and no deduction for the corporation, but the dividend tax credit reduces the personal tax, and there is no payroll to run.
Consider them if you do not need RRSP room, want flexibility in timing and amount, or want to avoid CPP contributions.
Which is better?
Neither, universally. The right mix depends on your personal cash needs, retirement plans, family planning and the corporation's own profit and tax position. Many owners take a modest salary for RRSP room and benefits, and dividends for the rest.
Tax efficiency
In theory the system is integrated: salary and dividends should cost about the same once corporate and personal tax are combined. In practice, brackets, credits and deductions tip the balance one way or the other at different income levels, so it is worth modelling each year rather than fixing once.
Talk it through
The wrong mix can cost thousands in tax or lost planning room. We model the options with your numbers at each year-end as part of corporate tax planning. Contact us to start.