Salary or dividends? Ontario cuts the dividend credit in 2027
Yan Zhou (周艳) · Licensed Life & Health Insurance Agent, Financial Services Regulatory Authority of Ontario (FSRA)
The short version
- On tax alone the two are close. The system is built that way — it is called integration.
- The real differences are CPP, RRSP room, and one Ontario change landing in 2027.
- Ontario cuts the small-business dividend tax credit from 2.9863% to 1.9863% on 1 January 2027. Dividends get slightly more expensive.
- Only salary creates RRSP room. $50,000 of salary = $9,000 of room. Dividends create none.
If something here applies to you, just ask me. Plain answers, no sales pitch.
(General tax information only. It is not tax advice. Circumstances differ — check the CRA website or speak to a qualified accountant before you act.)
Why the tax answer is a tie
Canada taxes corporate income once at the company and again in your hands, then hands you a dividend tax credit to offset what the company already paid.
Done properly, the total lands in roughly the same place either way. So the decision is not really about the rate table.
The 2027 Ontario change
This is the part most people have not caught yet.
| Taxation year | Eligible dividends | Other Canadian dividends (small business) |
|---|---|---|
| 2020–2026 | 10.0% | 2.9863% |
| 2027 | 10.0% | 1.9863% |
Dividends from your own corporation are in the right-hand column. A full point off the credit means the same dividend costs you more in 2027 than in 2026.
Public company dividends sit in the left column and are unchanged.
Check your T5. Boxes 24, 25 and 26 are eligible dividends. Boxes 10, 11 and 12 are the other kind.
Source: Government of Ontario, “Ontario dividend tax credit”, page updated 27 April 2026, checked 11 August 2026.
Only salary builds RRSP room
RRSP room is 18% of earned income. Salary is earned income. Dividends are not.
$50,000 × 18% = $9,000 of room. Pay yourself entirely in dividends and that number is zero.
The 2026 RRSP dollar limit is $33,810 and the 2027 limit is $35,390. To max out 2026 you would need salary of $33,810 ÷ 18% = $187,833.
Source: CRA, “MP, DB, RRSP, DPSP, ALDA, TFSA limits, YMPE and the YAMPE”, checked 11 August 2026.
CPP: a cost, and a pension
Salary attracts CPP, split between the company and you. Dividends do not.
| 2026 tax year | Amount |
|---|---|
| Maximum pensionable earnings | $74,600 |
| Basic exemption | $3,500 |
| Rate | 5.95% |
| Company and individual, each | $4,230.45 |
| Both halves together | $8,460.90 |
Plenty of owners treat CPP as pure cost and try to avoid it. It buys a pension. Whether that is a good trade depends on what you would otherwise do with the money.
Source: CRA, “CPP contribution rates, maximums and exemptions”, checked 11 August 2026.
Things that never show up in a rate table
- Mortgage lenders understand salary. Dividends often need explaining, and some lenders want two years of them.
- Child benefit and the Canada Groceries and Essentials Benefit are calculated on family net income. Both routes count.
- Salary means running payroll, remitting on time, and issuing a T4. Dividends need a T5 and little else.
- Money left in the company is taxed at the Ontario small business rate: 9% + 3.2% = 12.2%, up to the $500,000 limit.
Source: CRA, “Corporation tax rates”, checked 11 August 2026.
So which one?
Buying property or applying for a mortgage this year? Salary is easier to document.
Still building retirement savings? Salary is the only thing that creates RRSP room.
Close to retirement with room you will never use? Dividends avoid the CPP cost — but price in that 2027 point.
Not planning to take the money out at all? Then leave it. Tax stops at 12.2% until you do.
If something here applies to you, just ask me. Plain answers, no sales pitch.
(General tax information only. It is not tax advice. Circumstances differ — check the CRA website or speak to a qualified accountant before you act.)
