Choosing how to pay yourself—salary, dividends, or a deliberate mix—affects your tax bill, CPP eligibility, RRSP room, mortgage approvals, cash flow, and even succession plans. This Vancouver-focused guide helps owner-managers evaluate options and build a repeatable pay policy for 2025.
Related reading: Vancouver’s Business Tax Landscape in 2025 · Business Accounting Services · Services for Individuals & Corporations
Salary vs Dividends: the quick refresher
Salary (T4) is deductible to your corporation, creates CPP entitlements and RRSP room, and is reported as employment income. Dividends (T5) are paid from after-tax corporate profits, don’t create RRSP room or CPP, and use dividend tax credits personally. Integration aims to balance combined corp + personal tax over time, but cash flow and rate differentials still matter.
- Salary helps with mortgages, benefits eligibility, CPP, and predictable cash flow.
- Dividends help keep payroll simpler, avoid CPP premiums, and can be timed flexibly.
How to look at 2025 decisions
Each year brings changes to thresholds and planning windows. Rather than chasing rates line-by-line, build a policy anchored in your goals:
- Retirement wealth: prioritize RRSP/IPP room (requires salary).
- Take-home efficiency: weigh small business deduction room vs. personal marginal brackets.
- Cash flow: smooth with monthly salary; top up via year-end dividend.
- Documentation: maintain resolutions for dividends and employment agreements for salary.
Owner-Manager decision framework
- Set a living draw target. What do you need after tax each month?
- Cover RRSP/IPP objectives. Choose a base salary to create room (if relevant).
- Model corporate retention. How much profit should stay for growth or buffer?
- Top up with dividends. Use year-end dividends to match your target after tax.
- Review quarterly. Adjust the mix as profits and goals evolve.
Common Vancouver scenarios (and typical levers)
1) Growth-mode startup with tight cash
- Lean base salary for stability and RRSP room.
- Delay draws; take small dividends at year-end if profits allow.
- Keep bookkeeping current: Bookkeeping Services.
2) Established professional corporation
- Targeted salary to maximize CPP/IPP and lending profile.
- Use eligible/ineligible dividends mix to fine-tune after-tax cash.
- Quarterly planning with Tax Planning Services.
3) Owner planning a home purchase
- Favor steady salary (underwriter-friendly) for 24 months.
- Use dividends for occasional top-ups without changing payroll.
- Document income policy in writing; keep paystubs and T4 on file.
Compliance checklist (don’t skip!)
- Salary: payroll account, withholdings, remittances, T4, employer/employee CPP, records of employment if needed.
- Dividends: board resolution, share class review, T5 information return, paid-up capital tracking.
- Corporate minutes: document compensation policy and dividends declared.
- Cash controls: monthly reconciliation and shareholder loan ledger (avoid off-side loans).
Need help? Our Business Accounting Services keep payroll, ledgers, and slips clean for year-end.
Advanced levers to discuss with your CPA
- IPP or pension strategy (needs salary) for long-term, corporate-funded retirement.
- Holdco vs. Opco dividends and cash traps for asset protection and investing.
- Income sprinkling limits: ensure genuine labour/capital contributions when paying family.
- Bonus-down strategy at year-end vs. dividends to manage corporate tax thresholds.
- Benefits planning (health spending accounts, group benefits) tied to salary policies.
Explore cross-over topics in Streamlining Bookkeeping and Tax Strategies for SMEs.
Not sure what mix fits you? Book a 15-minute salary/dividend review. We’ll map your goals to a 2025 compensation policy and set quarterly checkpoints.
Create your 2025 owner-pay policy (template)
- Targets: monthly net draw, RRSP/IPP goal, corp retention, cash buffer months.
- Base salary: $_____ per month (payroll set up; remittances automated).
- Dividend window: quarterly/annual, from after-tax profits; share class confirmed.
- Governance: dividend resolutions, employment agreement, minute book updates.
- Rhythm: quarterly review, year-end true-up, next-year projections.
We can implement this inside your bookkeeping stack and forecasting model. See Bookkeeping Services.
Bottom line
There’s no one-size answer. A purposeful combination—salary for structure and retirement room, dividends for flexibility—often delivers the best after-tax and lifestyle outcome for Vancouver owner-managers. The key is documenting a policy, feeding it with clean books, and reviewing it quarterly.
Focus key phrase: salary vs dividends Canada 2025