If you’re incorporated, choosing between dividends and salary is one of the most meaningful tax decisions you’ll make every year. And for 2026, updated CPP enhancements, higher contribution limits, and evolving corporate planning strategies make it even more important to get this right.
At Raman Nat Inc., we specialize in supporting small businesses and incorporated professionals across British Columbia and Canada. This guide covers what Medical Professional Corporation (MPC), Legal Professional Corporation, or other professional corporations should do before year-end. Below is a clear, updated breakdown of how salary and dividends work in 2026, based on current CRA rules and CPA guidance, so you can understand exactly how they work and how to use them to your advantage.
Salary: When Paying Yourself as an Employee Makes Sense
Why Salary Works Well
1. Creates RRSP room RRSP contribution room is still calculated as 18 percent of earned income from the prior year. The 2026 RRSP limit is indexed to approximately $33,790, meaning salary continues to drive strong tax-deferred planning.
2. Strengthens CPP retirement benefits CPP continues its multi-year enhancement in 2026. Salary ensures contributions that directly increase future CPP payments.
3. Supports mortgage qualification Lenders heavily favour T4 income. For professionals planning to buy or refinance property, reliable employment income matters.
4. Lowers corporate taxable income Salary reduces the corporation’s taxable income, which helps preserve access to the small business deduction.
Downsides to Salary
- Requires consistent payroll remittances.
- Higher CPP contributions in 2026 increase both employer and employee costs.
- Taxes are paid throughout the year rather than deferred.
Dividends: When Distributing Corporate Profits Makes Sense
Dividends come from after-tax corporate earnings. They don’t create RRSP room and don’t require CPP contributions.
Why Dividends Work Well
1. Very low administrative burden No payroll setup. A dividend declaration and T5 slip at year-end keep things simple.
2. Can offer lower personal tax in specific income brackets Due to the dividend gross-up and credit system, many professionals pay less personal tax on dividends than they would on additional salary.
3. Flexible timing You choose when to declare dividends, making personal cash flow management easier.
Downsides to Dividends
- No RRSP contribution room.
- No CPP contributions, lowering future retirement income.
- Can weaken lending profiles if used exclusively.
- May reduce long-term tax integration benefits for high earners.
CRA Rules in 2026: What’s Allowed
CRA still allows owner-managers to pay themselves a salary, dividends, or a combination. There is no mandated ratio, only the requirement that:
- Salary is reasonable, and payroll is filed correctly,
- dividends are declared through corporate minutes,
- T4s and T5s are issued correctly,
- Bookkeeping accurately reflects all distributions.
The tax system aims for integration, meaning that total taxes are broadly similar for salary and dividend withdrawals. But integration is rarely perfect, which is why strategy matters.
What We Recommend Most Often
For most incorporated professionals and small business owners, the most effective structure in 2026 remains a balanced approach.
1. Pay Enough Salary to Meet Key Thresholds
Many clients benefit from paying $75,000 to $95,000 in salary, which:
- maximizes CPP contributions
- builds RRSP room
- creates reliable lending income
- reduces corporate taxable income
This range may vary by province, personal circumstances, and corporate profitability.
2. Use Dividends to Top Up Income
Once the salary target is met, dividends become the most efficient tool to:
- draw additional personal income
- use retained earnings strategically
- manage cash flow
- keep admin simple
3. Tilt More Toward Salary If You Want:
- predictable income for mortgage planning
- higher CPP benefits
- consistent RRSP retirement planning
- lower corporate income
4. Tilt More Toward Dividends If You Want:
- simpler administration
- flexible, on-demand income
- lower personal tax in specific ranges
- more retained earnings for corporate growth
Salary continues to provide stability, support retirement planning, and lead to stronger lending outcomes. Dividends offer flexibility, simplicity, and often lower tax. In 2026, the strongest plans still blend both, aligning with your business needs and your long-term financial goals.
If you’re unsure which approach best fits your situation this year, contact us, and we’d be happy to walk you through the numbers and create a personalized withdrawal strategy.
About Raman Nat Inc.
Raman Nat Inc. Chartered Professional Accountant is a trusted tax consulting firm located in Vancouver, BC, offering specialized financial services to professionals and small businesses. Our comprehensive suite of services includes corporate tax planning and preparation, bookkeeping, financial consulting, and business advisory, all designed to meet the unique needs of our diverse clientele. Contact: info@rncpa.ca
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