If your practice is incorporated, you can pay yourself a salary, dividends, or a mix of both. The total tax works out close to the same either way, so the real decision is about CPP, RRSP room, and how simple you want things. Most clinicians end up with a blend.
This question only comes up once you have incorporated. If you are still a sole proprietor, you do not choose, your profit is simply taxed in your hands. But the day you have a corporation, how you take money out becomes a real decision. Here is the trade-off without the jargon.
Salary, in plain terms
A salary is a deductible expense for your corporation and regular employment income for you. Paying yourself this way means:
- You build RRSP contribution room.
- You pay into CPP, which costs more now but builds your future pension.
- Your corporation runs payroll and sends source deductions to the CRA on a schedule.
Dividends, in plain terms
A dividend is paid out of money your corporation has already paid tax on. Taking money this way means:
- No CPP, so more cash in hand today, but nothing added to your pension.
- No RRSP room is created.
- Much simpler admin, no payroll and no source deductions to remit.
Why the total tax is roughly the same
The system is built so that earning through a corporation and paying it out lands you in a similar place to earning it directly. That is deliberate. So you are usually not choosing the path that “pays less tax” overall. You are choosing the features that matter to you.
Why most people blend
A common approach is a base salary, enough to build some RRSP room and CPP, topped up with dividends for the rest. It gives you a foot in both camps. The right split depends on your income, your retirement plans, whether you want to keep money in the company, and how much admin you are willing to take on.
Before this even applies
Remember, all of this starts with being incorporated, and incorporating is its own decision. If you are weighing that first step, read should you incorporate your health practice, then come back to how you will pay yourself.
Frequently asked
Neither is clearly better on total tax, because the system is built so they land in a similar place. The choice is about features: salary builds RRSP room and CPP, dividends are simpler and put more cash in hand now. Many clinicians use a blend.
Dividends do not require CPP contributions, so you keep more cash today. The flip side is you build no CPP pension and no RRSP room. Whether that is a saving or a cost depends on your retirement plans.
Yes, and most incorporated practitioners do. A base salary plus dividends is a common blend that gives you some RRSP room and CPP while keeping the rest flexible.
No. Salary versus dividends only applies once you are incorporated. As a sole proprietor, your profit is taxed in your hands and there is no choice to make.
This article is general information for Canadian health practitioners, not advice for your specific situation. The right salary and dividend mix depends on your numbers and goals, so confirm with an accountant.