Incorporation offers Canadian physicians powerful financial flexibility — but one of the most important decisions you’ll make is how to pay yourself. Should you take a salary, draw dividends, or use a combination of both?
Each option comes with its own implications for taxes, retirement planning, and cash flow. Here’s a breakdown to help you consider the right fit for your situation.
Salary: Structured Income with Long-Term Benefits
Paying yourself a salary means you’ll receive employment income from your corporation, which creates a Registered Retirement Savings Plan (RRSP) contribution room and contributes to your Canada Pension Plan (CPP).
Advantages:
- Generates RRSP contribution room
- Builds CPP benefits for retirement
- Provides consistent, reportable income for personal budgeting or loan applications
Considerations:
- Requires payroll setup and remittance
- Income is taxed at personal rates, which may be higher than corporate rates
Dividends: Flexible and Tax-Efficient
Dividends are paid from your corporation’s after-tax profits. This option typically involves less administrative work and can be more tax-efficient, especially if your income needs are modest or you’re leaving funds in the corporation for future use.
Advantages:
- Simple to administer — no payroll necessary
- May result in lower combined corporate and personal tax
- Useful for flexible income strategies
Considerations:
- Does not create RRSP contribution room
- No CPP contributions
- Irregular income can complicate personal financial planning and also may cause an issue when trying to get an approval for a personal loan/mortgage
A Combined Strategy: Balancing Efficiency and Security
Many physicians opt for a hybrid approach — drawing both salary and dividends. This can provide the retirement-saving advantages of a salary while leveraging the tax efficiency of dividends. It’s also a useful strategy for income splitting and long-term wealth planning within your corporation.
Make Your Compensation Work Harder
Choosing how to pay yourself isn’t just about today’s income — it affects your entire financial plan, from taxes to retirement to investment potential. The right mix is highly individual and should align with your professional goals and life stage.
At MedTax, we help incorporated physicians across Canada create customized tax strategies that maximize income, reduce liability, and plan for the future. Whether you’re newly incorporated or reviewing your compensation approach, we’re here to guide the process.
Book a free strategy session consultation at medtax.ca and take control of how you pay yourself — the smart way.
