How the comparison works
Both options start from the same amount of pre-tax corporate profit, so the comparison is fair.
- Salary: the corporation deducts the salary and its share of CPP (and EI if you are not exempt), so no corporate tax is paid on it. You pay personal tax, CPP and any EI.
- Dividends: the corporation first pays small-business tax: 11.7% for a calendar 2026 year (9% federal, plus Ontario's rate, cut from 3.2% to 2.2% on 1 July 2026) and 11.2% for 2027. What remains is paid as a non-eligible dividend, which is grossed up by 15% and taxed with the dividend tax credit.
- Integration
- Integration is the principle that income should attract roughly the same total tax whether it is earned personally or through a corporation and paid out. In practice the result is close but not identical, which is why this comparison is worth running.
What the numbers do not show
- CPP is not a pure cost. Contributions buy a CPP retirement pension. Dividends build none.
- RRSP room comes only from salary: 18% of earned income, up to $35,390 for 2027, usable the following year.
- Mortgages and lenders often prefer T4 income, and may average dividend income over two years.
- Family members receiving dividends may be caught by the tax on split income (TOSI) rules.
- Payroll means remittances and a T4; dividends need a T5 and proper corporate records.
Most owners land on a blend: enough salary for RRSP room, CPP and a clean T4, and dividends for the rest.
What changes in 2027
- Dividends cost more. Ontario proposes cutting its dividend tax credit on non-eligible dividends from 2.9863% to 1.9863% of the grossed-up amount, raising the top combined rate on these dividends from 47.74% to 48.89%.
- The corporate side gets cheaper. Ontario's small-business rate fell to 2.2% on 1 July 2026, so the combined rate is 11.2% for 2027.
- Salary gets a little cheaper. The base CPP rate falls from 4.95% to 4.75% each for employer and employee in 2027 (Bill C-30), so total CPP up to the YMPE drops from 5.95% to 5.75% a side.
- Switch the tax year above to see the net effect for your profit. Exact 2027 brackets and the YMPE are projected until the CRA publishes them.
Questions
Which is better, salary or dividends?
Neither in every case. Dividends often leave slightly more cash today because no CPP is paid, while salary builds RRSP room and CPP pension and is easier for lenders to read. The right mix depends on your income needs, retirement plans and whether you are borrowing.
Why is the owner EI-exempt?
If you control more than 40% of the corporation's voting shares, your employment is generally not insurable, so neither you nor the corporation pays EI on your salary. You can switch this off if it does not apply.
Does this include eligible dividends?
No. Profits taxed at the small-business rate are paid out as non-eligible dividends, which is the usual case for owner-managed corporations under $500,000 of active business income.
Estimates use 2026 and 2027 federal and Ontario rates for individuals and Canadian-controlled private corporations. 2027 figures marked projected are our calculation until the CRA publishes them, and are for illustration only. They leave out many personal credits, deductions and elections. Talk to a CPA before acting on compensation, incorporation or tax decisions.