One of the most common questions among incorporated consultants, realtors, creatives, and service professionals is:
“How do I pay myself from my corporation — salary, dividends, or both?”
There’s no universal answer. But understanding the options, and how they affect your taxes and reporting obligations, is key to staying compliant in both Canada and the U.S.
1. Paying Yourself a Salary
A salary is a business expense that reduces corporate profit and is reported on a T4 (Canada) or W-2 (U.S.). It creates RRSP or 401(k) contribution room and can help with mortgage applications or credit approvals.
Pros:
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Creates retirement contribution room (RRSP/401k)
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Counted as income for loans or benefits
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Corporate tax deduction
Cons:
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Subject to payroll remittances (CPP/EI in Canada, Social Security in U.S.)
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More administrative setup and filing obligations
Where Countwise Can Assist:
Support with payroll setup, monthly remittance tracking, and compliance with CRA or IRS filing timelines.
2. Taking Dividends
Dividends are paid from after-tax corporate profits and reported on a T5 (Canada) or 1099-DIV/Schedule K-1 (U.S.). They are taxed at different rates than salary and come with more flexibility.
Pros:
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Flexible in timing and amount
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May result in lower personal tax depending on your bracket
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No ongoing payroll obligations
Cons:
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No RRSP or 401(k) contribution room
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Can trigger AMT or OAS clawbacks in certain income ranges
Where Countwise Can Assist:
Dividend timing and planning, T5 preparation, and tax estimate modeling for both Canadian and U.S. reporting systems.
3. Hybrid Strategy: Salary + Dividends
For many incorporated professionals, a combination of both salary and dividends offers the best balance of tax efficiency and retirement planning.
Why this matters:
A hybrid strategy allows business owners to reduce corporate and personal taxes, maintain steady income, and grow retirement assets over time.
Where Countwise Can Assist:
Custom compensation plans, T4/T5 preparation, and strategic adjustments throughout the year based on your cash flow and personal goals.
Other Important Considerations
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Should a spouse or family member be included on payroll?
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What’s the best frequency and method for withdrawals?
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How do different provinces or states affect your tax treatment?
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What documentation is needed to support your compensation plan?
These aren’t one-size-fits-all questions, and the wrong approach can lead to penalties, missed deductions, or inefficient tax exposure.
Final Thought
Paying yourself from a corporation isn’t just about withdrawing funds. It’s about doing it strategically — balancing tax efficiency, retirement planning, and long-term financial stability.
Countwise Financial works with incorporated professionals across Canada and the U.S. to build thoughtful, compliant compensation plans that grow with your business.
Need help figuring out what works best for your situation?
Visit countwisefinancial.com or email hello@countwisefinancial.com