Salary vs. Dividend: What BC Business Owners Need to Know in 2025
One of the most common questions I get from incorporated business owners is: "Should I pay myself a salary or dividends?" The honest answer is — it depends. Here's how to think through it.
Why this decision matters
How you extract money from your corporation has a direct impact on your personal income tax, your CPP contributions, your RRSP contribution room, and even your eligibility for certain government benefits. Getting it wrong — or not thinking about it at all — is one of the most common and costly oversights I see in small incorporated businesses.
The good news: there is no universally "right" answer. The right mix depends on your personal income needs, your corporate retained earnings, your family situation, and your long-term goals. What follows is a framework for thinking it through.
The core trade-off
Salary
A salary is a deductible expense for your corporation, which reduces corporate taxable income. You pay personal income tax on it, and you also pay both the employee and employer portions of CPP (as an owner-employee). The key advantage: salary creates RRSP contribution room, which can be a powerful long-term tax deferral tool.
Dividends
Dividends are paid from after-tax corporate income. They are taxed in your hands at a lower rate than salary (thanks to the dividend tax credit), and there are no CPP contributions required. However, dividends do not create RRSP room, and they are not considered "earned income" for certain benefit calculations.
A simplified comparison (BC, 2025)
| Factor | Salary | Eligible Dividend | Ineligible Dividend |
|---|---|---|---|
| Corporate deduction | Yes | No | No |
| CPP required | Yes (both sides) | No | No |
| Creates RRSP room | Yes | No | No |
| Personal tax rate (approx. $100K) | ~43% | ~25% | ~36% |
| Best for | RRSP builders, income splitting via spousal RRSP | Passive investment corps | Most small CCPCs |
* Rates are approximate and for illustration only. Your actual rates depend on total income, province, and other factors. Speak with your CPA before making decisions.
What I typically recommend for small BC corporations
For most owner-managed small businesses, a blended approach works best: pay yourself enough salary to maximize your RRSP contribution room (or to meet a specific income target), and take the remainder as dividends. This balances the CPP cost against the RRSP benefit, and keeps your corporate tax bill manageable.
If you have a spouse or adult children who are shareholders, there may also be income-splitting opportunities through dividends — though the Tax on Split Income (TOSI) rules have significantly restricted this since 2018. This is an area where professional advice is particularly important.
This report does not constitute a formal tax opinion, and no professional-client engagement is created solely by the receipt of this document. The application of tax law is highly fact-specific, and the Canada Revenue Agency’s interpretation of the Income Tax Act may differ from the positions described herein. Tax legislation, CRA administrative policies, and judicial interpretations are subject to change without notice, and such changes may affect the conclusions reached in this report.
STS has exercised professional judgment in the preparation of this report; however, neither the firm nor any of its partners, employees, or agents shall be liable for any errors, omissions, or inaccuracies in the information provided, or for any loss, damage, or consequence arising from reliance upon this report.
This report may not be reproduced, distributed, or relied upon by any party other than the intended recipient without the prior written consent of STS.
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