You incorporated your trades business for good reasons: liability protection, a lower corporate tax rate, and the chance to control when and how you get paid. Then comes the question every incorporated owner eventually asks - should I take salary or dividends?
Most guides answer that question for a generic small business. You run a crew, buy materials, float payroll between draws, and get paid when the job pays. That changes the math. Here's the straight answer for BC trades and landscaping company owners, without the jargon.
The real question behind salary vs. dividends
Salary and dividends aren't competing philosophies. They're two doors out of the same corporation, and both end at your personal bank account. What differs is how much tax you pay on the way out, what you give up, and what you gain.
The moment you stop treating this as a "which one is better" question and start treating it as "which mix fits me this year," it gets simpler. Owners who draw money without a plan are the ones who overpay every March.
Salary: a steady paycheque with strings attached
Salary is what most trades owners default to, because it feels like being an employee again - predictable, direct deposits, taxes withheld.
What salary gets you:
- A steady, predictable income you can budget a mortgage and truck payment around.
- RRSP contribution room. This is the big one, and owners routinely undervalue it.
- CPP contributions, which build your future CPP entitlement.
- T4 income banks look at favorably when you're financing equipment or a home.
What salary costs you:
- Both the employee and employer portions of CPP come out of your corporation's pocket - roughly double the CPP you'd pay as an employee.
- Payroll means source deductions, remittances, and filing deadlines. Miss them and the CRA charges interest.
- If your revenue is uneven - and in trades it always is - a fixed salary can strain cash flow in a slow month.
Dividends: lower tax, but you give things up
A dividend is a share of after-tax corporate profit paid out to you as a shareholder. Your corporation already paid tax on that money, so the personal tax hit is softened by the dividend tax credit.
What dividends get you:
- Generally lower combined tax than salary at the same dollar amount, because the corporation already paid tax and you skip CPP.
- No mandatory CPP contributions, so more cash lands in your pocket today.
- Flexibility. You declare dividends when the money is actually there.
What dividends cost you:
- No RRSP room is created. Take dividends for twenty years and your retirement savings vehicle is a personal account, not a tax-sheltered one.
- No CPP credit, so you're not building that entitlement.
- Dividends are not deductible to the corporation the way salary is, and the analysis only works if you're leaving enough profit in the company to justify the corporate tax you paid.
- Lenders often look at dividends less favorably than T4 income when you're qualifying for credit.
Side-by-side: salary vs. dividends for a BC trades owner
| Factor | Salary | Dividends |
|---|---|---|
| Personal tax treatment | Fully taxed as employment income | Taxed with the dividend tax credit applied |
| CPP | You and the corporation both contribute | None |
| RRSP room | Created | Not created |
| Corporate deduction | Yes - reduces corporate taxable income | No - paid from after-tax profit |
| Timing flexibility | Fixed and recurring | You choose when to declare |
| Lender perception | Strong, predictable income | Weaker, harder to qualify |
| Administrative load | Payroll, remittances, T4s | Simple, but needs documented minutes |
Choosing the mix: three situations that decide it
You're at $1M+ revenue with a crew on payroll
At this stage you have enough profit to pay yourself a reasonable salary and still take a dividend on top. A common approach is a modest salary that covers living expenses plus RRSP room, then dividend top-ups when the year closes strong. That keeps CPP costs sane and still gives you the RRSP headroom you'll want later.
Your cash flow swings with the seasons
Snow removal and outdoor renovation are opposites, and neither matches a fixed monthly salary. Lean on dividends for the variable portion and keep salary low but steady. Just remember: the corporation still needs to have already paid tax on that profit. Dividends aren't free money - they're tracked money.
You're building toward retirement or a sale
RRSP room is the argument for salary, full stop. If you're within ten to fifteen years of stepping back or selling, salary deserves more weight than an immediate-tax-minimizing spreadsheet suggests. The tax you save today on dividends is often smaller than the sheltered retirement savings you give up.
Rules of thumb that hold up
- Don't decide once and never revisit it. Your mix should change as revenue, profit, and personal income change.
- Watch your personal marginal rate. The higher your personal bracket, the more the comparison shifts.
- Keep the corporation's money and your money separate. Shareholder draws, loans, and dividends must be documented. The CRA doesn't accept "I just transferred it."
- Never guess with your own money. A fifteen-minute modeling exercise on real numbers beats a year of assumptions.
Where Cornerstone fits in
This decision is a modeling question, not a philosophy question, and it depends on your corporation's specific numbers: revenue, profit left in the company, your personal tax bracket, your team size, and your retirement timeline.
Cornerstone Compliance works exclusively with BC trades and landscaping companies. On a free call we'll walk through your numbers, show you what each option actually puts in your pocket, and recommend the mix that fits your business and your goals. Then we keep it on track - bookkeeping, payroll, GST/PST, and CRA filings handled, with straight answers whenever something comes up.
FAQ
Is it better to pay myself a salary or dividends as a sole owner?
There's no single right answer. Salary buys RRSP room and CPP entitlement; dividends generally save tax today. The right mix depends on your profit and your retirement plans.
Can I pay myself both a salary and dividends?
Yes, and many incorporated BC trades owners do. A modest salary plus dividend top-ups is a common approach for owners with healthy profit.
Do dividends avoid CPP entirely?
Yes. Dividends are not pensionable, so no CPP is deducted or contributed. That's a cash-flow benefit now and a retirement consideration later.
How much should my salary be?
A common starting point is an amount that covers personal living expenses and creates meaningful RRSP room, without pushing you into the highest personal bracket. That number is personal - model it.
The bottom line
Salary vs. dividends isn't a debate, it's a dial. Turn it to match your profit and your timeline, revisit it every year, and stop letting the decision happen by accident.
If you want to see your own numbers rather than a generic comparison, book a free call with Cornerstone Compliance.