Shareholder Remuneration: Salary vs. Dividends

As a shareholder of a corporation, income can generally be received in different forms depending on the structure and circumstances of the business.

This post provides a high‑level overview of two common methods of shareholder compensation, salary and dividends. It is intended for general informational purposes only and does not consider individual circumstances.

Assuming there are no tax on split income (TOSI) considerations, shareholders are commonly compensated through one or a combination of the following methods.

Salary (T4)

When a shareholder is paid a salary, they are treated as an employee of the corporation.

Key characteristics include:

• A T4 filing obligation, due by the end of February of the following calendar year

• Salary is considered earned income for RRSP contribution room purposes

• Canada Pension Plan (CPP) contributions are required, including both the employee and employer portions

• Payroll remittances are required and are generally due by the 15th of the following month

• Personal income tax is withheld at source through payroll

Dividend (T5)

Dividends are paid to shareholders from after‑tax corporate profits.

Key characteristics include:

• A T5 filing obligation, due by the end of February of the following calendar year

• Dividends do not create CPP contributions or CPP benefit entitlement

• Payroll remittances are not required

• Personal income tax is not withheld at the time dividends are paid

• Corporate records, including dividend declarations, must be properly documented

Important Considerations

Salary and dividends operate differently from a reporting and compliance perspective. In some cases, a combination of both may be used.

In all cases, shareholder compensation should be coordinated with proper record‑keeping, corporate documentation, and CRA compliance requirements, including the management of shareholder loan balances.

Professional advice is recommended to ensure the approach used is appropriate for the corporation’s specific circumstances.

Disclaimer
The information provided in this blog is for general informational purposes only and does not constitute accounting, tax, or legal advice. Tax laws and reporting requirements vary based on individual circumstances and are subject to change. Readers should not act on this information without seeking professional advice specific to their situation. Reading this blog does not create a client‑advisor relationship.