The salary vs. dividend question is one of the most valuable things to get right as a Quebec corporation owner — and the optimal answer changes every year.
Salary Advantages
- Creates RRSP contribution room (18% of earned income up to $32,490)
- Generates QPP pensionable earnings for retirement benefits
- Deductible expense for the corporation
- Helps qualify for mortgage or credit
Salary Disadvantages
- Full income tax plus employee QPP contributions
- Corporation pays employer QPP share (effectively doubling QPP cost)
- Requires payroll administration
Dividend Advantages
- No QPP contributions required (saving ~10.8% on first $73,200)
- No EI premiums
- Dividend tax credit partially offsets personal tax
- Simpler — no payroll required
The Optimal Mix for Most Owner-Managers
For most Quebec owner-managers: pay salary sufficient to generate desired RRSP room ($181,667 earns maximum RRSP room), with remaining profits distributed as eligible dividends. This balances RRSP accumulation, QPP benefits, and corporate tax efficiency.
This calculation changes annually with new thresholds — an annual review with your accountant optimizes this decision each year.