Wages vs. Dividends

At JMH, when we are meeting with our clients and discussing various strategies for your business, one of the most common questions that comes up is “Should I be paying myself a wage or a dividend?”

The answer is often very different depending on each specific set of facts and the owner’s feelings on a few items.

Here are 5 key factors to consider when deciding whether to pay yourself a wage or a dividend:


CPP-300x200.jpg1. CPP 

Salary income qualifies as CPP insurable earnings, while dividends do not.

If the Owner-Manager has strong opinions on the CPP program, the decision will often ignore all other factors in the analysis.  There are some articles and reviews that suggest the return on investment (“ROI”) analysis shows an expected return of 6-8% for regular employees (measured as the expected pension return on CPP payments over the employee’s working life).

These results are cut in half when you consider that the employer must match the employee’s CPP contributions, which is the same person in an Owner-Manager situation. 

This leaves an expected return of 3-4% on CPP payments.

RRSP-300x200.jpg2. RRSP Contribution Room

Salary income creates RRSP contribution room, while dividend income does not.

If the Owner-Manager is using RRSP to plan and save for retirement, this will be a key consideration.

Admin-300x200.jpg3. Administration 

“I keep forgetting to make my monthly payroll contributions!!”  You’re not alone…for many clients the simplicity of dividend allocations is very attractive when considering the payroll deductions and payroll remittance requirements for salary income. 

The Owner-Manager is required to deduct CPP and income tax from salary payments and make a monthly filing and payment to CRA.

Dividend allocations do not require any monthly remittances or filings.

surprise-300x200.jpg4. Personal Tax Surprises

Along the same lines, for many clients, the forced tax remittances (required for Salary income as noted above) is very beneficial and helps to avoid those surprise tax bills in April.


tax-300x200.jpg5. Tax Rates

Most clients expect that choosing between Salary and Dividends will result in significant tax savings, but the tax system is designed to ensure that the tax paid on income is the same regardless of how that income is reported. 

Currently, there happens to be a slight advantage (less than 1%) for small business owners who pay themselves a Salary rather than a Dividend.

Before making any changes in your remuneration plans, be sure to talk through the situation with your accountant. There could be other implications from these decisions, including the effect on your company’s debt covenants, personal mortgage applications, and access to the small business tax rates just to name a few.

Want to make sure it all adds up? Connect with us!
At JMH & Co., we are your partner for financial success. 

Book an appointment with us or give us a call today. 

Medicine Hat (403) 527-4451
Brooks (403) 362-4004 
Calgary (403) 261-0835

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