Salary or Dividends in BC? 2026 Trade-Offs With Real Numbers
Should a BC business owner pay themselves salary or dividends? See the 2026 trade-offs with example numbers: tax, CPP, RRSP room and cash left in the company.
The Question Every Incorporated Owner Asks
Once your business is incorporated, the money in the company account is not automatically yours. To get it into your own pocket you pay yourself, and there are two main ways to do it: a salary, or dividends. Most owners ask the same question every year: which one is better? The honest answer is that each one has trade-offs. Salary usually pays slightly less tax in BC, but it leaves less cash in your company. Dividends leave more cash in the company, but they skip things that matter later. The right mix depends on your situation.
How a Salary Works
A salary is paid through payroll, just like an employee. The company deducts the salary and its half of CPP as business expenses, and you pay income tax and your own half of CPP. For 2026, CPP is 5.95% each for you and the company on earnings between $3,500 and $74,600. Salary is "earned income", so it creates RRSP room (18% of your earned income, up to the yearly limit). It also needs a payroll account, monthly source deductions and a T4 at year-end.
How Dividends Work
Dividends are paid out of the company's profit after corporate tax. For a Canadian-controlled private corporation in BC, the first $500,000 of active business income is taxed at 11% (9% federal plus 2% BC). You then pay personal tax on the dividend, with a dividend tax credit to account for the tax the company already paid. There is no CPP on dividends, and dividends do not create RRSP room. The paperwork is lighter: a director's resolution in the minute book and a T5 slip filed by the last day of February.
The Example: $150,000 Profit, $90,000 to Live On
Here is one example, using 2026 BC rates. An incorporated electrician has $150,000 of company profit before paying himself, and needs $90,000 in his pocket for the year after personal tax and CPP. He is the only shareholder and has no other income.
All salary: total tax $28,186, CPP $9,293 (both halves), left in the company $22,521, RRSP room created $21,609.
All dividends: total tax $29,657, CPP $0, left in the company $30,343, RRSP room created $0.
50/50 mix: total tax $28,867, CPP $6,247, left in the company $24,886, RRSP room created $10,079.
Total tax is corporate plus personal tax. These are example numbers only, rounded to the dollar. Your own numbers will be different.
What the Numbers Say
To put the same $90,000 in his pocket, salary pays about $1,472 less tax. Dividends leave about $7,821 more in the company. The gap is mostly CPP: $9,293 goes into CPP on the salary side and nothing on the dividend side. So dividends do not save tax here. They leave more cash because they skip CPP. Whether that is a good trade depends on what you would do with that cash, and how much you value the CPP pension you are not building.
What the Numbers Don't Show
CPP is not lost money. It builds your retirement pension and includes disability benefits. Dividends skip it.
RRSP room only comes from salary (earned income).
Mortgage lenders often prefer steady T4 salary when you apply. Ask your lender how they treat dividend income.
Cash you leave in the company and invest can, if it grows large enough, reduce the company's access to the small business rate later. That is a reason to plan, not a reason to panic.
Why Many Owners Use a Mix
Salary versus dividends is not a winner-takes-all question. A mix gets you some of each: enough salary to build CPP and RRSP room, and dividends for the rest. Where the line sits depends on your income needs, your retirement plans, whether you plan to borrow, and what else is going on in your tax picture.
Run Your Own Numbers
Our free Salary vs Dividend Calculator shows salary, dividends and a mix side by side for your own profit and take-home. It takes about a minute and there is no sign-up. It is an estimate based on 2026 BC rates for one shareholder with no other income, not tax advice.
How Murtagh & Co. Can Help.
We help incorporated trades and construction owners across the Okanagan set a pay plan that fits: how much to take, how to split it between salary and dividends, and how to keep the paperwork (payroll, T4s, T5s and minute book resolutions) in order. We look at your whole picture, not just this year's tax bill.
Devon Murtagh, CFA, FRM, is a former trades business owner who ran a roofing and siding company. He knows what it is like to look at the company bank balance and wonder how much of it is really yours to take.
Prefer to talk it through? Book a free 30-minute call at a time that works for you, or reach out at info@murtaghco.ca.