For most solo founders, a salary up to the QPP ceiling then dividendsdividendsShare of profits paid to shareholders by board resolution.See definition → above it balances tax, social rights and simplicity. Dividends alone aren’t “free”: you lose RRSP room and QPIP coverage.
When salary wins
You want RRSP room, plan parental leave, or need a mortgage: lenders read a T4, not a T5.
When dividends win
Irregular income, no need for RRSP room this year, or optimizing the capital dividend accountcapital dividend accountNotional tax account allowing certain amounts to be paid tax-free to shareholders.See definition →. Dividends are declared at year-end by resolutionresolutionFormal decision of directors or shareholders, recorded in the minute book.See definition → — recorded in the minute bookminute bookOfficial record holding a corporation’s articles, by-laws, resolutions and registers.See definition →.
The math (with the simulator)
- 1Set your net personal need — what you need after tax each month.
- 2Compare both scenarios on total corporate + personal tax, not personal only.
- 3Add the value of rights (RRSP, QPIP, QPP) — what dividends alone cost you.
- Salary = social rights and credit file; dividend = flexibility.
- A dividend needs a dated resolution in the minute book.
- Review the mix every year-end with your CPA.