Most business owners fall into one of two buckets:

1. They set up a compensation plan for themselves when they hit profitability and then never revisited it OR
2. They have no compensation plan and pull whatever they need/whatever is left at the end of the month

If you fall into either of these, you’re likely getting hit with more personal taxes than you need to.

Consider this your reminder to review how you’re paying yourself - and what your options are.

Your Three Options

If you're incorporated in Canada, you actually have three main ways to pull money out of your business: salary, dividends, and shareholder loans. Each one hits your taxes differently, and the right mix depends on your situation.

1. Salary

You put yourself on payroll, deduct CPP and income tax at source, and pay yourself like any other employee.

Why you'd do this: Salary creates RRSP contribution room. If you want to maximize your RRSP (and you should, if you're under 65 and plan to retire eventually), you need earned income on your T4. Salary also counts toward your CPP contributions, which means a bigger pension later.

The tredeoff: Your corporation pays the employer portion of CPP on top of your salary. That's an extra cost of roughly $3,800 per year (2026 rates). And salary is taxed at your personal marginal rate, which in Canada can climb past 50% depending on your province.

2. Dividends

Your corporation declares a dividend and pays it to you as a shareholder. No payroll deductions at source.

Why you'd do this: Dividends are taxed at a lower effective rate than salary thanks to the dividend tax credit. If your corporation earns under $500,000 (the small business limit), eligible dividends from that income get preferential treatment. You also skip CPP contributions entirely, which saves both you and the corporation money.

The tradeoff: No RRSP room. No CPP credits. And if CRA decides your dividends are unreasonable relative to the work you do, you could get reassessed.

3. Shareholder Loan

You borrow money from your corporation. Technically, it's a loan, not income.

Why you'd do this: Quick access to cash without triggering an immediate tax event. Useful for one-time purchases or bridging a gap.

The catch: If you don't repay the loan within one fiscal year of the corporation's year-end, CRA adds the full amount to your personal income. This is the one that gets people in trouble. A $50,000 shareholder loan you forgot to repay becomes $50,000 of taxable income. Don't use this as a regular compensation method.

So Which One Should You Pick?

For most incorporated Canadian business owners doing $200K to $2M in revenue, the answer is a blend of salary and dividends. Here's a rough framework:

Pay yourself enough salary to max out your RRSP contribution room. In 2026, that means roughly $180,000 in salary to generate the maximum $33,810 in RRSP room. If you don't need that much RRSP room, scale the salary down accordingly.

Top up with dividends. Once you've covered your salary target, take the rest as dividends to benefit from the lower tax rate.

Use shareholder loans sparingly. Only for short-term needs, and always repay within the deadline.

The Numbers Matter More Than the Strategy

Here's what most articles about owner compensation won't tell you: the "right" split between salary and dividends changes every year. Provincial tax rates shift. CPP limits change. The small business deduction threshold could move.

This is why you need a monthly close, not a year-end scramble. If you're reviewing your numbers every month, you can adjust your compensation mix mid-year. If you're waiting until March to figure this out, you're looking at last year's decisions with zero ability to change them.

What to Do This Week

If you're currently paying yourself "whatever's left," here's your next step:

Pull up your last three months of owner draws, salary payments, and dividend declarations. Add them up. That's your actual compensation run rate.

Now compare it to what you'd need to cover your personal expenses, max your RRSP, and keep your tax bill reasonable. If those numbers don't match, you have a compensation problem, and fixing it now gives you the rest of the year to course-correct.

If you're not sure how to calculate the optimal split for your situation, that's exactly the kind of thing a monthly review catches before it becomes a year-end surprise.