Salary vs. Dividends for Incorporated Physicians (2025 Analysis)

Written By David Wiitala

by David Wiitala using ChatGPT Deep Research - general information only, not to be used as advice

Income Flow Mechanics: Salary vs. Dividend Payments

When a physician’s medical professional corporation (MPC) earns income, there are two primary ways to pay that income out to the physician-shareholder: salary or dividends (or a combination). Understanding how each flows from the corporation to the individual is key:

Tax integration concept: Canada’s tax system is designed so that, in theory, a dollar of income earned via a corporation and paid out as dividends should result in roughly the same total tax as if it were earned directly as salary. This is called integration (Paying Dividends vs Salary From A Canadian Controlled Private Corporation To Invest in RRSPs — Physician Finance Canada). In practice, perfect integration is rare – small disparities exist based on the province and income level (Paying Dividends vs Salary From A Canadian Controlled Private Corporation To Invest in RRSPs — Physician Finance Canada). Generally, the total tax paid on income flowing through a CCPC as dividends is within a few percentage points of the tax if taken as salary, with slight advantages one way or the other depending on the circumstances (Paying Dividends vs Salary From A Canadian Controlled Private Corporation To Invest in RRSPs — Physician Finance Canada). We explore these differences next.

Tax Implications in 2025: Federal & Provincial Considerations

Corporate tax vs. personal tax: Paying salary or dividends results in different tax obligations for the corporation and the individual:

  • If you pay yourself a salary, the corporation’s taxable income is reduced (salary is deductible), so the corporation saves corporate tax. The trade-off is the physician pays full personal income tax on that salary at their marginal rate (Salary vs. Dividends: Which should you choose and why? | Knit People Small Business Blog). Essentially, all income is taxed in the shareholder’s hands immediately.

  • If you take dividends, the corporation first pays corporate income tax on its profit, then the physician pays tax on the dividend they receive – but at a preferential rate due to the dividend tax credit (). Part of the tax is paid at the corporate level, part at the personal level. Uniquely, dividend income is “grossed-up” for tax purposes (by 15% for non-eligible dividends from CCPC active income, or by 38% for eligible dividends from high-taxed income) (). A corresponding dividend tax credit then applies, intended to prevent double taxation (). The gross-up means that dividends can inflate your taxable income for calculating benefits/clawbacks (discussed later).

Federal corporate rates: As of 2025, Canadian-controlled private corporations (CCPCs) enjoy a low federal tax rate of 9% on active business income up to the “small business deduction” (SBD) limit (generally $500,000 of profit) (The Passive Investment Income Rules: Understanding the Impact on Your Business | The Link Between) (The Passive Investment Income Rules: Understanding the Impact on Your Business | The Link Between). Any active income beyond the limit (or income of larger corporations) is taxed at the general federal rate of 15% (The Passive Investment Income Rules: Understanding the Impact on Your Business | The Link Between). In addition, CCPC investment (passive) income is taxed at a high federal rate (~38.67%), a portion of which is refundable when paying out dividends (more on this later) (Canada - Corporate - Taxes on corporate income).

Provincial corporate rates: Provinces impose their own tax on corporate income, with lower rates for income eligible for the small business deduction. For example, Ontario’s 2025 provincial rate is 3.2% on small business income (combined with the 9% federal to total ~12.2% on the first $500k) and 11.5% on general active income (combined with federal 15% to total ~26.5%) (2025 Ontario Combined Tax Rates and Key Updates | Bateman MacKay). Other provinces are similar: e.g. Alberta’s combined small business rate is about 11% (2% provincial + 9% federal) and general rate 23% (8% + 15%) (Salary vs. Dividends: The Ultimate Guide to Paying Yourself as a Business Owner in 2025 - Shajani CPA). Passive investment income in a CCPC is generally taxed around 50% (combined federal/provincial), reflecting a punitive rate intended to approximate top personal tax (with part of this eligible for refund when dividends are paid out) (OSA Insurance).

Personal tax rates: Physicians, often being high earners, can hit the top personal tax brackets. In 2025, the top combined federal + provincial marginal rates for personal income are approximately:

Integration in practice – example: In Ontario, active business income paid out as a dividend from a CCPC (taxed at the small business rate inside the corporation, then as a non-eligible dividend personally) sees roughly 47.7% total tax at the top bracket (Combined Top Marginal Tax Rates For Individuals—2025). This is only modestly lower than the ~53.5% one would pay on that income as straight salary at the top rate. The small gap (~5–6% in this case) represents a slight tax efficiency in favor of dividends at the margin (Combined Top Marginal Tax Rates For Individuals—2025). In contrast, if the corporation’s income exceeds the SBD and is taxed at the general 26.5% rate, it would pay eligible dividends; at the top bracket, the combined tax on an eligible dividend in Ontario is ~55% (26.5% corp + 39% personal), slightly higher than paying salary (Combined Top Marginal Tax Rates For Individuals—2025). In Alberta, top-bracket integration currently favors dividends as well: ~42.3% on a CCPC dividend vs 48% on salary (Combined Top Marginal Tax Rates For Individuals—2025). The key point is that differences are not drastic – the tax system aims to equalize outcomes, and changes in tax rates over time can swing the advantage one way or the other (Paying Dividends vs Salary From A Canadian Controlled Private Corporation To Invest in RRSPs — Physician Finance Canada). Any small integration “mismatches” may be outweighed by other factors discussed below.

Tax-deferral advantage: While immediate tax on salary may be slightly higher or comparable, an important benefit of taking dividends is the ability to defer personal taxation by retaining income in the corporation. A CCPC paying only the small business tax (~12% in Ontario, ~11% in Alberta, etc.) can invest the pre-personal-tax earnings. The deferral compared to paying top-rate personal tax (53% in many provinces) is significant – roughly a 40% larger initial amount left to invest (e.g. $0.88 vs $0.47 per dollar of pre-tax earnings in Ontario) for as long as the funds stay inside the corporation. Eventually, when dividends are paid out, personal tax is due, but in the meantime the compounding on the larger after-corp-tax amount can be a financial advantage. This deferral is most beneficial if funds can be left in the corporation long-term or until a lower-income year (or even until death, with careful estate planning). However, tax deferral is not tax avoidance – ultimately, if one wants to spend the money personally, the second layer of tax will be paid.

Illustrative payout strategy: Many physicians choose to draw enough salary to use lower personal tax brackets or to maximize RRSP room, and then take additional income as dividends. This way, they benefit from both upfront corporate tax savings on the dividend portion and the RRSP contribution room from the salary portion (). We will detail this “hybrid” approach later.

Long-Term Retirement Planning Effects (RRSP, TFSA, IPP, Corporate Investing)

How you compensate yourself can significantly impact retirement savings vehicles and strategies:

  • RRSP Contribution Room: Only salary (earned income) generates RRSP contribution room; dividends do not (). Each year, RRSP room equals 18% of prior-year earned income up to an annual maximum (which is $31,560 for 2024 income, rising to ~$34,000 for 2025 income). For example, paying yourself a $200,000 salary in 2024 would create about $36,000 of RRSP room for 2025. But if you took all compensation as dividends, your RRSP room would be $0 (). Even if you don’t plan to contribute to an RRSP now, building room can be valuable later (Salary versus dividends for health care professionals). Salaries as low as about $170k are enough to max out the RRSP room each year (the max in 2025 corresponds to ~$171k salary (Why To Pay Yourself Salary From Your Corporation — Physician Finance Canada) (Why To Pay Yourself Salary From Your Corporation — Physician Finance Canada)). Bottom line: If you want to utilize RRSPs as a tax-deferred retirement account, you need sufficient salary. In provinces where dividends have a slight tax edge, a common strategy is still to **pay yourself at least the salary needed to maximize RRSP contributions, and take the rest as dividends】 ().

  • Tax-Free Savings Account (TFSA): TFSA room (currently $7,000 per year in 2025 (2025 Ontario Combined Tax Rates and Key Updates | Bateman MacKay)) is not tied to income – everyone 18+ gets it regardless of salary or dividend levels. However, practically speaking, paying less personal income (via low salary/high corporate retention) might leave you with less cash in hand to contribute to your TFSA. Many incorporated doctors ensure they pay out (via salary or dividend) at least enough to max out TFSA each year, since the TFSA’s tax-free compounding is very beneficial long-term. If the corporation has excess cash, one strategy is to pay a dividend specifically to fund TFSA or RESP contributions in a given year.

  • Individual Pension Plan (IPP): An IPP is a defined-benefit pension plan that a corporation can establish for a high-income owner–manager (often attractive for older physicians). Salary is required to utilize an IPP – you must have T4 income to create initial IPP room and to contribute annually () (Why To Pay Yourself Salary From Your Corporation — Physician Finance Canada). Generally, IPPs can allow larger contributions than RRSPs for those in their late 40s and beyond (because contribution limits increase with age). For example, an IPP might allow significantly higher tax-deductible contributions for a 60-year-old physician than the RRSP limit, potentially providing more retirement funds sheltered in a pension plan. If you only take dividends and no salary, you foreclose the IPP option (Why To Pay Yourself Salary From Your Corporation — Physician Finance Canada). Some doctors who incorporate in mid-career use salaries (or bonuses) to generate “past service” IPP room – an IPP can sometimes credit past years of T4 income, but no T4 means no past service to buy. In short: If an IPP is part of your retirement strategy (often for those ~45+ with high income), paying yourself a salary (at least periodically) is necessary to “keep the door open” for an IPP (Why To Pay Yourself Salary From Your Corporation — Physician Finance Canada).

  • Corporate Investment & Passive Portfolio: Instead of contributing to RRSP/IPP, an incorporated physician can leave surplus earnings in the corporation to invest. This corporate investing strategy takes advantage of the low corporate tax rate on active income (allowing ~87¢ on the dollar to be invested, vs ~47¢ if taken personally in a top bracket). Over years, this can result in a substantial investment portfolio inside the MPC or a holding company. The trade-off is that investment income within a corporation is taxed annually at ~50% (interest, foreign dividends, rental income are fully taxed at high rates; for capital gains, currently 2/3 of the gain is taxable, see below) (OSA Insurance). Half of the corporate capital gains tax goes into a refundable dividend tax account (RDTOH) and can be returned to the corporation when dividends are paid (OSA Insurance) (OSA Insurance). The net effect: passive income in a corporation grows slower than in an RRSP/TFSA (which face no annual tax). For example, investments in an RRSP grow tax-free, whereas in a corporation the same investments might lose ~50% of interest or other income to taxes each year (Why To Pay Yourself Salary From Your Corporation — Physician Finance Canada). This difference is significant over long periods. A salary-to-RRSP strategy achieves a “100% tax deferral” on contributed amounts (none of that income taxed until withdrawal) versus only a ~75–88% deferral when leaving income in the corporation (Why To Pay Yourself Salary From Your Corporation — Physician Finance Canada). Some analyses show that, even with corporate investing, paying enough salary to contribute to an RRSP can yield a larger after-tax retirement fund than keeping all money in the corporation, due to the RRSP’s full sheltering (Why To Pay Yourself Salary From Your Corporation — Physician Finance Canada) (Why To Pay Yourself Salary From Your Corporation — Physician Finance Canada). On the other hand, money in a corporation can be left indefinitely (or until death) and timing of dividend payouts can be managed, whereas RRSPs must eventually convert to RRIFs at 71 and mandate withdrawals. There is a balance to consider: corporate investing offers flexibility in timing of personal tax, whereas RRSP/IPP offer superior tax-free compounding.

  • Using Both Personal and Corporate Saving: Often the optimal approach is to do both – use salary to max out RRSP/IPP (and TFSA from any source), and retain additional earnings in the corporation to invest after paying the low corporate tax. This dual approach diversifies your tax exposure: you’ll have some fully sheltered registered funds and some corporate funds with deferred tax. One notable consideration: by retaining too much in the corporation, you might trigger the passive income grind on the small business rate (next section). Also, large corporate portfolios can create a hefty tax bill in the estate if not planned for. Many physicians plan to draw down their corporate investments in a controlled manner in retirement (or use life insurance strategies) to manage this.

CPP, EI, and Government Benefit Implications

Canada Pension Plan (CPP): CPP contributions are payable on salary income but not on dividend income. If you pay yourself a salary, both the corporation and you (as employee) contribute to CPP up to the annual maximum (Year’s Maximum Pensionable Earnings, YMPE, which is $66,600 in 2025). The total CPP premium in 2025 is about 11.9% of salary up to YMPE (combined employee/employer), roughly $7,000 at the max (Salary vs. Dividends: The Ultimate Guide to Paying Yourself as a Business Owner in 2025 - Shajani CPA) (Salary vs. Dividends: The Ultimate Guide to Paying Yourself as a Business Owner in 2025 - Shajani CPA). With dividends, no CPP is paid, because dividends are not “pensionable earnings” (). The trade-off is between paying CPP now and receiving CPP benefits later. A common sentiment is that CPP may yield a modest return (largely indexed to wage inflation). Indeed, CPP is not a bad investment – it provides a lifelong inflation-indexed pension (plus ancillary disability and survivor benefits) with a return roughly equivalent to a conservative fixed-income investment (Paying Dividends vs Salary From A Canadian Controlled Private Corporation To Invest in RRSPs — Physician Finance Canada) (Paying Dividends vs Salary From A Canadian Controlled Private Corporation To Invest in RRSPs — Physician Finance Canada). If you never contribute to CPP (taking only dividends), you will not receive CPP retirement benefits, and you need to ensure you invest the CPP savings yourself to make up for that lost income stream. Some physicians view CPP contributions as a forced low-risk investment – by contributing via salary, they effectively add to their “fixed income” bucket in the form of future CPP pensions (Paying Dividends vs Salary From A Canadian Controlled Private Corporation To Invest in RRSPs — Physician Finance Canada). Others prefer to have that cash in hand to invest on their own. In practice, many incorporated professionals opt to pay themselves at least up to the CPP maximum earnings (or split that over salary to themselves/spouse) so that they will qualify for CPP at retirement. Those who avoid CPP (by taking only dividends) are forgoing a guaranteed pension – which is fine if one is disciplined in investing the equivalent funds and has other retirement assets, but it increases personal responsibility for funding retirement. In summary: Salary means CPP premiums now for CPP benefits later; dividends mean no CPP – you save money now but must self-fund the entire retirement income.

Employment Insurance (EI): Most physician shareholders do not pay EI on their compensation. If you own ≥40% of a corporation, you are generally not eligible for regular EI benefits (you can’t insure against “firing yourself”) (Salary vs. Dividends: Which should you choose and why? | Knit People Small Business Blog). Therefore, even if you draw a salary, the corporation does not deduct EI premiums (and you can’t collect EI if you stop working voluntarily or close your practice). There is a special program to opt into EI for certain benefits (like maternity/parental leave) for self-employed persons, but uptake is rare, and it involves registering and paying premiums separately. In short, EI is usually a non-factor – incorporated physicians typically do not contribute to EI whether they take salary or dividends. (If a spouse or family member is on payroll without 40% ownership, EI might be deducted for them, but often family employees can also be categorized to avoid EI if they control significant shares or are related to the owner in a way that benefits wouldn’t be paid.)

Old Age Security (OAS) and other government benefits: OAS is an income-tested benefit for seniors (65+). High-income seniors must repay OAS via the OAS clawback (recovery tax). In 2025, the clawback kicks in at about $93,000 of net income for those 65-74 (and OAS is fully eliminated by ~$151k of income) (Old Age Security pension recovery tax - Canada.ca). How does compensation method affect this? Dividends can make OAS clawback worse because of the gross-up: for OAS purposes, your net income includes the grossed-up dividend. For example, $80,000 of actual non-eligible dividends is grossed-up by 15% to $92,000 of taxable income () – nearly hitting the clawback threshold, whereas $80,000 of salary is $80,000 of income. “When the gross-up means a clawback,” as advisors say, dividend recipients may see OAS reduced at lower actual cash income levels () (). The same issue can apply to the Age Credit phase-out and other income-tested programs: dividends inflate the income measure. Canada Child Benefit (CCB): This benefit phases out at fairly high income levels; most physicians past a certain income won’t receive much CCB regardless. However, for those with moderate family income, keeping personal taxable income lower (by leaving income in the corporation) can increase CCB or related credits. Because dividends do not create RRSP deductions and have gross-ups, a pure dividend strategy could actually show higher net income on paper than a salary+RRSP strategy for the same cash in hand, potentially reducing means-tested credits. In general, though, for high-earning physicians, the primary government-benefit consideration is OAS in retirement. Planning point: if you anticipate a lower-income retirement (or plan to income-split), the OAS clawback may be less of an issue; but if you still have high incomes (e.g. large corporate dividends or other income at age 65+), dividends will trigger clawback just as other income does – only slightly sooner due to the gross-up.

Health care premiums / surcharges: A minor note – some provinces (like Ontario) levy a health premium or surcharge based on income. These use net income from all sources, so again there’s no direct difference between salary or dividend – both count. But because dividends might allow you to distribute income over years or among family, there could be indirect benefits in avoiding certain income thresholds in a given year.

Conclusion on CPP/EI/Benefits: Salary yields CPP contributions and eventual CPP benefits, whereas dividends yield neither contributions nor benefits (). EI is usually moot (no coverage in either case). Income-tested benefits can be slightly impacted by the form of income due to technicalities like the dividend gross-up. A conservative approach is to pay enough salary to get CPP (ensuring some base pension and disability survivor coverage through CPP), and be mindful of the OAS clawback if you plan to have large dividend income after 65. Ultimately, these government programs are just one piece of the puzzle – many physicians won’t rely heavily on OAS/CCB, but CPP is significant to consider in the salary vs. dividend decision.

Insurance Considerations (Disability & Other Coverage)

When it comes to insurance, how you pay yourself can affect eligibility and coverage amounts for certain types of insurance:

  • Disability Insurance: This is a critical coverage for physicians, protecting a portion of your income if you become unable to work. Insurers typically base the benefit on your earned income (T4 employment income or net business income) – not investment or dividend income. If you rely solely on dividends from your corporation, you may face a challenge: insurance companies will want proof of steady wage income for the coverage (Salary versus dividends for health care professionals). In fact, dividends do not count as earned income for most individual disability insurance policies (Salary versus dividends for health care professionals). This means a physician taking only dividends could be told they have little or no insurable income, or they may not qualify for the maximum benefit level they otherwise could. By paying yourself a reasonable salary, you establish a documented income that an insurer can use to justify coverage (Salary versus dividends for health care professionals). For example, if you draw a salary of $200,000, you can typically insure up to about $10,000/month or more of disability benefit. But if that $200k came as dividends with no T4, an insurer might treat your “income” as $0 for traditional disability coverage purposes, or require additional proof of corporate income (which is more complicated and often not recognized in full). Group policies: Some group or association plans (e.g., through a provincial medical association) might use a definition of income that includes corporate earnings for business owners, but you’d need to verify – many still look for T4 or T1 income. Key point: If you want robust disability insurance (and most physicians should), ensure you have sufficient salary or bonus declared to support the coverage. As one CPA firm notes, “dividends do not count towards your disability insurability, so you may not be able to purchase additional coverage with dividend income only.” (Salary versus dividends for health care professionals). The solution is often to take at least a baseline salary.

  • Life Insurance (personal): Term life insurance for yourself generally does not depend on your income type (insurers look at total financial picture). Whether you pay yourself via salary or dividends usually doesn’t affect your ability to get personal life insurance coverage, as long as you can show the need (e.g., to cover family protection or estate taxes). However, paying dividends exclusively might complicate the picture when demonstrating your income for very large policies – insurers might require corporate financial statements to understand the business profits if your personal T1 shows low income. This is usually surmountable. So for term life or personal critical illness coverage, the impact is minor.

  • Corporate-owned Overhead/Disability Insurance: Some physicians also buy office overhead insurance or a corporate policy to fund expenses if they’re disabled. Those policies will consider the expenses of the corporation, not your personal income, so salary vs dividend doesn’t directly matter for eligibility.

  • Health Spending Accounts (HSAs): An HSA (or Private Health Services Plan) allows a corporation to pay health expenses for an employee/shareholder on a tax-free basis. Notably, some advisors point out you must be an employee of the corporation (i.e., draw a salary) to use an HSA effectively (Salary versus dividends for health care professionals). If you only receive dividends (which classifies you as a shareholder but not an employee for tax purposes), you might not qualify to have the corporation reimburse your medical expenses tax-free. In practice, many incorporated professionals ensure they have at least a small salary so they can set up an HSA and have the corporation pay medical/dental expenses. This is a niche benefit, but worth mentioning: salary opens certain tax-free benefit opportunities (like HSAs), whereas dividends alone do not (Salary versus dividends for health care professionals).

  • Shareholder/Key Person Insurance: Not directly a salary vs dividend issue, but if your MPC might buy life or disability buyout insurance (e.g., to fund a buy-sell on death or disability), the rationale for coverage will hinge on corporate profits and value. A consistent salary can help demonstrate the value of the individual to the corporation.

In summary, for disability insurance purposes, salary is strongly preferred. The lack of “earned income” with a dividend-only approach can limit your ability to get coverage or the amount of benefit you qualify for (Salary versus dividends for health care professionals). Many financial advisors recommend that incorporated professionals take at least enough salary to cover personal living needs and establish an income for insurance, even if dividends are more tax-efficient. Once adequate coverage is in place (or if you’re willing to accept lower coverage), additional compensation can be taken via dividends. It’s crucial to coordinate with your insurance advisor when structuring your income.

Estate Planning Considerations (Holding Companies, CDA, Corporate Life Insurance)

Having a corporation adds complexity to estate planning for physicians. Here are key considerations regarding salary vs dividends in the context of estate and legacy planning:

  • Accumulation of Wealth in Corporation vs Personal: If you take primarily dividends and leave surplus income invested in the corporation (or in a holding company), you may accumulate a large corporate investment portfolio over decades. This can be advantageous during your life (tax deferral, creditor protection, etc.), but it means at death you don’t just own cash – you own shares of a corporation that itself owns assets. When an individual dies, there is a deemed disposition of capital property, including shares of a corporation. So if you die holding shares of your MPC or holding company that have grown in value (because of all those retained earnings and investments), your estate could face a capital gains tax on that share value. Example: Suppose over years of taking low salary/high dividends, your corporation retained $3 million of investments. If you originally started the company with nominal share value, your shares might be worth $3 million at death. That could trigger about a $3M capital gain on your final return – at a 66.67% inclusion (as of 2025), that’s $2M taxable, and at ~53% tax ~ $1.06M tax just for the share gain (if no planning) (OSA Insurance) (OSA Insurance). (This tax may be deferred if shares transfer to a spouse, but ultimately when the second spouse dies, it comes due (OSA Insurance).) In contrast, if you had paid out more funds to yourself over time (and invested personally or in registered accounts), you might have paid higher personal taxes along the way but left a smaller corporate asset on death.

  • Triple Tax Problem and Post-mortem Planning: Without careful planning, drawing only dividends and leaving assets in the corporation can lead to multiple layers of tax on death: (1) capital gain on the shares at death (as described), (2) corporate tax on any unrealized gains inside the company when assets are sold, and (3) tax on dividends when distributing remaining assets to heirs (OSA Insurance) (OSA Insurance). An example analysis (OSA Insurance) showed that, on a $3M corporate investment portfolio passed to children, total combined tax could exceed 70% if no planning is done (OSA Insurance). This is obviously something to mitigate. Two key tools to avoid double or triple tax are the Capital Dividend Account (CDA) and the post-mortem pipeline – both are facilitated by corporate dividend payments (including tax-free dividends from CDA or stepped-up basis for shares).

  • Capital Dividend Account (CDA): The CDA is a notional account that tracks certain tax-free amounts within a private corporation that can be paid out as tax-free dividends to shareholders (The pros and cons of corporate-owned life insurance | Advisor.ca) (The pros and cons of corporate-owned life insurance | Advisor.ca). The main credits to the CDA come from: the non-taxable portion of capital gains (e.g., 33% of a gain if inclusion is 66.67%) and life insurance proceeds received by the corporation (minus policy ACB). Using your corporation to invest and eventually realizing capital gains can build a CDA balance. More powerfully, if the corporation (often a holding company) owns a life insurance policy on the physician, upon death the insurance payout credits the CDA for the amount of the death benefit. This allows the corporation to pay a tax-free capital dividend to the estate or heirs equal to that amount (The pros and cons of corporate-owned life insurance | Advisor.ca). For example, if a holdco owns a $2M life insurance on Dr. X, when Dr. X dies the $2M goes into CDA and can be paid out to beneficiaries with zero tax. This can be used to offset or pay the tax on the shares or to deliver cash to heirs without triggering the dividend tax. In essence: Corporate-owned life insurance provides liquidity to the estate and creates CDA room to extract money tax-free (OSA Insurance) (OSA Insurance).

  • Corporate-Owned Life Insurance: Many incorporated physicians use permanent life insurance (whole life or universal life) as an estate planning and investment tool. The corporation pays the premiums (using its lower-taxed dollars) and is the beneficiary (The pros and cons of corporate-owned life insurance | Advisor.ca). The benefit: It costs less pre-tax income to fund the same premium from a corporation versus personally (since corporate tax rates are lower than top personal rates) (The pros and cons of corporate-owned life insurance | Advisor.ca). Over time, cash value in such policies grows tax-deferred (and can even be accessed via loans if needed). Importantly, the growth in a life insurance policy does not count as passive investment income for the $50k passive income test (unless withdrawn) (The pros and cons of corporate-owned life insurance | Advisor.ca). This means a physician can invest surplus corporate funds into an insurance policy without eroding their small business deduction – an attractive strategy if the corporation has more passive assets than they need for regular investing. At death, the policy pays out to the corporation, and the death benefit minus any adjusted cost base (ACB) of the policy credits the CDA, allowing that amount to flow to heirs tax-free (The pros and cons of corporate-owned life insurance | Advisor.ca). In our earlier $3M portfolio example, if say $500k of that came from life insurance CDA credit, the heirs could receive that $500k with no dividend tax (OSA Insurance). Summary: Corporate-owned life insurance can convert taxable corporate wealth into a tax-free payout for the estate (The pros and cons of corporate-owned life insurance | Advisor.ca), and using corporate dollars makes it cost-efficient to fund (The pros and cons of corporate-owned life insurance | Advisor.ca). The downside is premiums are paid with after-tax corporate money (not deductible) (OSA Insurance), and funds are tied up in the policy.

  • Holding Companies (Holdco): Some physicians set up a separate holding company to own the shares of their MPC or to receive dividends from the MPC. A holdco can serve several purposes:

    • Creditor protection & segregation: The MPC (professional corp) carries on the medical practice (which typically has malpractice protection via insurance but could have other liabilities). The holdco can be a repository for accumulated savings – the MPC can pay dividends to the holdco (which is tax-free between connected corporations) and thereby move excess cash out of the operating company. This way, if the MPC faces a claim or needs to be wound down, the investments are safely sitting in the holdco. (Professional corporations offer some liability protection for business matters, but not for professional negligence – however, separating assets can still be prudent for other risks and for eventual simplification.)

    • Avoiding the passive income grind: By moving surplus cash to a holdco, the MPC might keep its passive income below the $50k threshold (because the investments reside in the holdco instead). Careful: associated company rules mean that if the holdco is associated with the MPC, its passive income can still grind the MPC’s SBD. Many physicians use a holdco that is not formally associated (e.g., where a spouse holds the holdco shares or via some structural separation) – this gets complex and requires professional advice. But as a basic point, a holdco can help manage the passive income in the operating company.

    • Estate simplification: If a physician retires, they might convert their professional corp into a regular investment company or amalgamate it with the holdco. Upon death, having a holdco with just investment assets could simplify a post-mortem pipeline (an arrangement to avoid double tax by effectively converting the share capital gain into a one-time dividend to the estate). Pipelines often involve a new corporation anyway, but using a holdco as the recipient of assets can give flexibility. Also, some provinces allow shares of an MPC to be transferred to a holding company (provided all shareholders are licensed physicians or family as allowed) – this can facilitate estate freezes or transferring some future growth to children, etc., though this is less common with professional corps due to ownership restrictions.

    • Multiple capital gains exemption (CGE): The Lifetime Capital Gains Exemption (now $1.25 million for qualifying small business shares as of mid-2024 (Combined Top Marginal Tax Rates For Individuals—2025)) may apply if the shares of the MPC are sold. However, MPCs often don’t qualify or aren’t sold like typical businesses (the goodwill is personal). But if an MPC did qualify as a small business corporation and was sold, a holdco could allow multiplying the CGE among family shareholders. This is a niche scenario; most doctors do not count on a tax-free sale of their practice.

In any case, integrating a holdco means that much of your remuneration might actually be paid from the MPC to the holdco (as dividends), and then you draw funds from the holdco as needed (either via dividends or winding-up distributions). A detailed discussion is beyond scope, but key estate takeaway: Leaving money in the corporate structure can cause significant taxes on death if not planned for, but there are tools to mitigate this (e.g., corporate life insurance and CDA dividends, post-mortem pipelines, spousal rollovers) (OSA Insurance) (OSA Insurance). Paying out more via salary or dividends during your lifetime (especially when in lower brackets, e.g., after retirement) can reduce the buildup inside the corp and potentially reduce estate tax exposure. There is a delicate balance between enjoying the tax deferral now (by keeping income in the corp) and managing the ultimate tax later (when funds are extracted or the owner passes away).

Estate Planning Action Items: If you opt for primarily dividends and corporate retention during working years, plan to revisit your strategy as you approach retirement. Many physicians, upon retirement, will start drawing down corporate investments as dividends (potentially at a lower personal tax bracket than when working) to avoid leaving a huge nest egg exposed to the punitive estate taxes. Others implement an estate freeze and shift future growth to the next generation or a family trust. And nearly all will consider the use of CDA and life insurance strategies if the corporate assets are substantial. Coordination with a tax advisor is essential. The salary vs dividend decision isn’t permanent – it can and should be adjusted over the life cycle of the practice (for instance, some choose more salary in later years if needed to bump up RRSP/IPP or to ensure a smoother transition out of the corporation).

In summary, dividends and retention can build wealth in the corp, but be mindful of the endgame. Corporate strategies like holdcos, CDA, and corporate-owned life insurance are powerful tools to handle the consequences of a dividend-focused approach. Salary, on the other hand, leaves less trapped in the corp (since you extract and pay tax as you go), which can simplify later – but at the cost of higher immediate taxes and less deferral. Estate planning should weigh these trade-offs in advance, so there are no unpleasant surprises for your heirs.

Passive Income Rules and the $50,000 Threshold (Small Business Deduction Clawback)

In 2018, tax rules were introduced to curtail the advantages of accumulating passive investments inside CCPCs. These rules directly affect incorporated professionals who leave income in their corporation. Here’s how they work and why they matter:

(The Passive Investment Income Rules: Understanding the Impact on Your Business | The Link Between) Passive investment income erodes the small business deduction. The first $50k of passive income has no impact, then the small business limit declines linearly, hitting $0 when passive income = $150k (The Passive Investment Income Rules: Understanding the Impact on Your Business | The Link Between).

  • Managing Passive Income: This rule means that if you have sizable investments inside your corporation, you must manage how much income they produce. Earning $50k of interest, dividends, or realized gains each year might be fine, but crossing above that will raise your corporate tax on practice income. Note that realized capital gains count in the year they are realized (again, only the taxable portion counts). Capital gains can be lumpy – one big sale might spike passive income for that year. These rules provide a tax planning motive to keep passive income below $50k if possible:

    • Invest in a way that emphasizes growth over current income (e.g. stocks with little dividends, or deferred capital gains).

    • Use corporate-owned life insurance or other exempt life insurance investment options – the investment growth inside certain life policies does not count toward the passive income test (The pros and cons of corporate-owned life insurance | Advisor.ca).

    • Consider paying out extra dividends to shareholders to remove capital from the corp and invest personally if the corp is on track to exceed the threshold. Sometimes it can make sense to withdraw money (despite personal tax) to prevent a future loss of the small biz rate on operating income.

    • Timing asset sales: if you have control, you might spread the sale of investments over a couple of years to avoid a huge passive income in one year.

    • Utilizing a holding company might help if structured so that the passive income is not attributable to the operating company (this requires careful planning; simple ownership by a holdco doesn’t escape the grind if the companies are associated, but more complex trust structures might).

    • If passive income is inevitably high (say you’ve accumulated a very large portfolio), an alternative is to accept that you’ll be taxed at the higher rate on practice income – in that case, future dividends you pay from that high-taxed income will be “eligible dividends” which carry a higher dividend tax credit, partially offsetting the lost benefit. In other words, if you lose the small biz rate, integration shifts – you pay more at the corporate level but your personal tax on those dividends will be at the lower eligible dividend rate. The overall integration tends to even out in the long run, though you lose the deferral.

  • Salary vs Dividend Impact: How does the passive income rule relate to the salary vs dividend decision? Indirectly. If you pay yourself more salary, you reduce the corporation’s pre-tax income (so it may invest less, producing less passive income). Also, paying salary could deliberately reduce corporate retained earnings (and you invest those funds personally instead, where passive income doesn’t affect corporate tax rates). Essentially, a dividend/retention strategy can lead to a growing corporate investment portfolio – a good thing for deferral, but once that portfolio throws off >$50k/year, there’s a tax backlash on your practice income. A salary strategy leaves less surplus in the corp (since more is paid out and taxed personally), so it’s less likely you’ll hit the passive income threshold in the corporation. There’s a balancing act: you wouldn’t want to pay out salary just to avoid the passive income grind if that means paying a lot more personal tax unless the grind is costing you an equivalent amount. In dollar terms, exceeding the $50k passive threshold can cost up to $13.5k in extra corporate tax for each additional $100k of passive income (if it causes $500k of income to be taxed at 27% instead of 12% – roughly a 15% difference on $100k active income, equals $15k, offset somewhat by the higher dividend credit later). This is complex, but know that large passive incomes can chip away at the value of keeping income inside the corp.

Given the 2024 federal tax changes, note that capital gains inclusion is now 66.67% for individuals for gains above certain thresholds (and similarly affects corporate taxation of gains). This actually increases the passive income measured from capital gains inside a corp (because a larger portion of gains is taxable). So realizing big capital gains in the corporation is more likely to push you over $50k passive income now than it was when only 50% was taxable. That’s another reason to possibly realize gains gradually or plan around the new inclusion rate.

Small Business Deduction Recap: The small business tax rate (around 12% or lower) on the first $500k of income is very valuable to an incorporated professional. The $50k passive income rule puts that at risk if you stockpile investments in the corp. If maintaining the low rate is important (for example, you have close to $500k in practice income and want it all at 12%), you may choose to stream excess funds out of the corp (via dividends to yourself or to a family holding company) to keep passive income under control. On the other hand, if your practice income is well below $500k or you’re nearing retirement, the passive income rule might never bite (or you might not mind paying the general rate in exchange for keeping your investments corporate).

In conclusion, the passive income rules introduced a new wrinkle: the more you lean on a dividend/retention strategy, the more you must monitor your corporation’s investment income. It doesn’t directly dictate salary vs dividends, but it can nudge the decision. Many incorporated physicians initially focus on building up savings in the corp (enjoying the deferral), but once the investment income approaches that grey zone, they reconsider taking more out or restructuring their holdings. It’s a classic “pay now or pay later” scenario – either pay more personal tax now (salary) or risk higher corporate tax on practice income later (due to passive income). The optimal path depends on investment performance, needs, and time horizon, and is often evaluated with an accountant’s help each year.

Other Considerations: Mortgages, Income Smoothing, and Borrowing

Mortgage and Loan Qualification: When applying for personal credit (like a mortgage), the way you pay yourself can affect how lenders perceive your income. Most banks and lenders prefer a steady T4 salary to establish income for mortgage qualification (Salary vs. Dividends: Which should you choose and why? | Knit People Small Business Blog). A regular paycheck is straightforward and “relatable” to underwriters (Why To Pay Yourself Salary From Your Corporation — Physician Finance Canada). If you take only dividends, you will still have income reported on your tax return, but some lenders might discount it or look at it with more scrutiny. In practice, many lenders will accept dividend income – it’s still taxable income – but they may average your income over 2–3 years if it’s variable or require confirmation from your accountant of the corporation’s ability to continue paying that level of dividends. The process can be a bit more involved. Having a consistent salary can make it easier to qualify for mortgages or loans, especially with traditional lenders (Salary vs. Dividends: Which should you choose and why? | Knit People Small Business Blog). Some physicians have encountered lenders who ask, “Do you have a T4?”, and if the answer is no, additional documentation is needed to substantiate the dividend income and the stability of the corporation. For this reason, a number of incorporated professionals choose to pay themselves a base salary that covers living expenses and debt servicing, ensuring that their T4 income looks ample for credit applications, and then take top-up dividends for the rest. Note: Some lenders will consider “grossing up” dividend income (because dividends are received net of corporate tax), or even consider retained corporate profits as part of your overall financial strength. For example, a bank might factor in your corporation’s income or assets if you provide corporate financial statements, recognizing that you could pay yourself more if needed. This is done case-by-case. But not all mortgage brokers are familiar with integrating corporate income into personal loan assessments. The simplest path to avoid hassle is to have a solid T4.

Income Smoothing and Flexibility: One advantage of being incorporated is the ability to smooth your income over the years. With salary, you tend to set a fixed amount per year, which becomes your taxable income each year. With dividends, you have more flexibility – you could pay yourself a large dividend in one year and little in the next, or vice versa. This can be useful if your personal needs or tax considerations vary:

  • If you have a low-income year (say you take a sabbatical, or go part-time, or have large deductions one year), you might choose to take more dividends in that year to “use up” lower tax brackets.

  • Conversely, in a very high-income year (or while working full tilt), you might retain earnings in the corp and defer taking them until a later year when your personal income (and marginal tax rate) is lower – for instance, early retirement years before government pensions kick in, or a year after selling a practice when you have no other income.

  • This smoothing is particularly helpful around retirement. Many doctors cease practice (no new active income) but still have substantial savings in their corporation. They can then pay out dividends over the retirement years in amounts that keep them in a moderate tax bracket, effectively averaging out what could have been one big tax hit if they had to take all the money at once. This is a way to avoid OAS clawbacks and minimize tax on RRIF withdrawals by controlling the flow of dividend income to stay under certain thresholds.

  • If you rely exclusively on salary while working, you pay top-rate tax during high-earning years and might end up with less flexibility later. Of course, if you saved that salary in RRSPs, you have some smoothing via RRSP/RRIF strategy, but corporate dividends add another layer of control.

In short, dividends offer more timing flexibility. You can adjust year by year. Salary is typically more fixed (though you can declare bonuses or adjust salary, but once you pay it in a year, it’s taxed that year). Many incorporate specifically for the ability to modulate income draw.

Borrowing from the Corporation: Sometimes owners consider borrowing money from their corporation (shareholder loans) for personal use instead of paying a taxable dividend. While there are provisions allowing short-term shareholder loans, in general if you borrow from your corp and don’t repay within the next fiscal year, it will be deemed income and taxed anyway. So, using a shareholder loan is usually only a very temporary strategy. It’s more common to simply declare a dividend if cash is needed. Therefore, salary vs dividend is the main decision for getting money out; loans aren’t a long-term substitute.

Corporate borrowing: If you leave funds in the corporation, the corporation could itself invest in assets or even real estate, or perhaps purchase a building for your practice, etc., potentially using its assets to secure loans. This is beyond the scope of compensation strategy, but note that having assets in the corp might allow corporate-level loans (which could be at lower rates or with different tax-deductible interest treatment if for business or investment purposes). However, if you need funds personally (e.g., to buy a house), you usually have to get them out of the corp (triggering tax) or borrow personally.

Summary of financing considerations: If you anticipate needing personal credit, a consistent salary (or predictable mix of salary/dividends) will present better to lenders (Salary vs. Dividends: Which should you choose and why? | Knit People Small Business Blog). Dividends provide planning flexibility that can also help you keep your personal income in the optimal range for various goals (tax or otherwise) in different years. The corporation can act as a buffer – you don’t have to take out every dollar you earn each year. This is one of the key advantages of incorporation: you control the timing of personal income. Salaries can be adjusted, but usually more rigidly; dividends can be declared whenever it makes sense. Use that flexibility to your advantage (for example, retaining earnings in high-earning years to avoid wasting them in the top tax bracket, and releasing them in years you can fully utilize lower brackets).

Hybrid Strategy: Combining Salary and Dividends (Pros and Cons)

Given the myriad factors above, many physicians find that a blend of salary and dividends provides the best overall outcome. A hybrid approach tries to capture the advantages of each method while mitigating drawbacks. Key elements of a hybrid strategy include:

Pros of a Hybrid Approach:

  • RRSP and IPP Optimization: Pay enough salary to maximize RRSP contribution room (or to support an IPP). For example, a salary of around $170,000 – $180,000 would maximize RRSP room each year in the mid-2020s (Why To Pay Yourself Salary From Your Corporation — Physician Finance Canada) (Why To Pay Yourself Salary From Your Corporation — Physician Finance Canada). This ensures you don’t miss out on the valuable tax shelter of RRSPs (). If you plan to set up an IPP in the future, even a few years of moderate salary can allow “buyback” of those years in the IPP calculation, potentially boosting your deductible contributions later (Why To Pay Yourself Salary From Your Corporation — Physician Finance Canada).

  • CPP Benefits: By taking salary at least up to the YMPE (e.g. ~$66k in 2025), you contribute to CPP and secure the maximum CPP retirement pension (and ancillary disability/survivor benefits). This can be viewed as part of your fixed-income retirement base. Beyond that level, you might not want to pay more CPP (since no further benefits accrue above the YMPE), so one strategy is to pay a salary equal to the YMPE each year (to max CPP credits), and take any additional compensation as dividends. This way you’ve checked the CPP box without paying excess CPP contributions for no added benefit.

  • Disability Insurance Eligibility: With a hybrid, you’ll have a baseline salary that satisfies income verification for insurance. For instance, a physician might set a salary of say $120,000 – $150,000, which easily qualifies them for the maximum disability benefit offered in most plans, and then take the remainder of cash flow as dividends. This ensures full insurance coverage potential is maintained while still reaping some dividend tax advantages.

  • Tax Efficiency and Deferral: After covering RRSP and CPP via salary, paying the rest as dividends allows the surplus income to be taxed initially at the low corporate rate and withdrawn when needed. This often results in a lower effective tax rate on those dollars (especially if the dividends can be sprinkled over time or to lower-income family members when TOSI exclusions apply, such as a spouse over 65). Integration is nearly neutral over the long run, but by timing dividends smartly, you can achieve a lower average tax rate on that portion of income.

  • Remittance and Cash Flow Management: With a mix, you get the benefit of steady paycheck and tax withholdings on the salary portion (covering your baseline expenses and preventing large tax installment burdens), and flexibility on the dividend portion. Many find it practical to set up a reasonable monthly salary to cover living costs and known obligations, then quarterly or annually declare a dividend if additional funds are needed (for a big purchase, extra investments, or simply profit distribution after year-end once financials are clear).

  • Small Business Deduction Preservation: By not draining all profit as salary, the corporation retains earnings and still fully utilizes the small business tax rate on the first $500k. At the same time, by not retaining all earnings, you might keep the passive investment growth moderate, delaying or avoiding the $50k passive income threshold issue. In effect, a balanced approach can extend the usefulness of your small business deduction over more years.

Cons or Considerations of a Hybrid Approach:

  • Complexity: Running both a payroll and declaring dividends means more administrative work (T4 and T5 filings, accounting for two types of income). That said, these tasks are routine for any accountant. Modern payroll services make salary remittances easy (and many physicians already run payroll for staff, so adding yourself isn’t difficult). The complexity is a minor cost for the flexibility gained.

  • Precision required: You need to determine the “right” salary. Paying too high a salary purely to create RRSP room can be counterproductive (e.g., salary beyond what you will use for RRSP or beyond CPP max might just incur unnecessary personal tax). For example, if you pay yourself $300k salary when you only really needed $180k to max RRSP and maybe another $70k for spending, that extra $50k salary might have been better left in the corp. The optimal split often requires annual planning with your accountant, factoring your family’s situation.

  • Payroll taxes on salary portion: You will still incur CPP contributions on the salary portion (and perhaps provincial health taxes or workers’ comp premiums if those apply). CPP on, say, $70k salary is about $7k (employer+employee). Some might argue you could invest that $7k instead. However, as discussed, CPP isn’t a pure loss – it’s deferred pension income. In a hybrid, you limit CPP to a reasonable level.

  • TOSI and Income Splitting: A hybrid approach doesn’t inherently solve the Tax on Split Income (TOSI) issues. If you want to income-split with a spouse or adult children, salary allows you to pay them directly for work done (which must be reasonable compensation to avoid attributive issues). Dividends allow sharing income with family shareholders, but TOSI rules (since 2018) severely restrict dividend sprinkling unless the family member is actively involved in the business or other exceptions (like spouse ≥65) apply. A hybrid strategy might involve paying a spouse a salary for actual work (e.g., office manager duties) instead of dividends, to legitimately shift income without TOSI (The Great Salary Vs Dividend Debate pt 6: Integration Inefficiencies). Meanwhile, you might still take your own remaining compensation as dividends. In essence, the hybrid approach can complement an income-splitting strategy: use salaries for any family members who can be employees (to get them income at a lower tax bracket), and use dividends for yourself or for family members who meet TOSI exclusions (such as after age 65, where a spouse can receive dividends from your business freely). Always consult a tax advisor on splitting, as TOSI is complex.

  • Recordkeeping: With salary + dividends, you’ll want to track your tax installments carefully. The salary portion has withholdings, but the dividend portion may require you to pay quarterly installments if large. It’s important not to fall into a false sense of security from your T4 withholdings if a significant part of your income is still untaxed until year-end.

Despite these considerations, the hybrid model is very popular because it acknowledges that the decision is not all-or-nothing. As RBC Wealth Management puts it, “consider paying sufficient salary to maximize RRSP contributions, then pay dividends to supplement your income needs.” () This captures the essence of hybrid planning.

A common Hybrid Scenario: Dr. B projects that she needs $120,000 after-tax to live comfortably and wants to max her RRSP. Working with her accountant, she decides to take a $160,000 salary from the MPC. Roughly $40k of that will go to taxes/CPP, leaving about $120k net for living and TFSA contributions. This salary creates ~$28,800 of new RRSP room for next year and maxes her CPP contributions. The remaining practice profits (let’s say her MPC earned $300k and after salary expense it has $140k left pre-tax) are left in the corporation for now, taxed at 12.2% = $17k corporate tax, leaving ~$123k in retained earnings. Come the following spring, Dr. B and her accountant look at the corp’s finances: she might declare a dividend of, say, $50k to take a vacation and invest in a taxable account personally (keeping her total personal taxable income in a comfortable bracket), and leave the rest in the corp to invest. Over time, she is building a corporate portfolio but also her RRSP and TFSA and enjoying a good lifestyle. This balanced approach hits many targets: personal needs, retirement savings, tax-efficiency, and future flexibility.

Pros and Cons Summary: A hybrid strategy seeks to get the best of both worlds – the deductions and benefit eligibility of salary plus the tax deferral and flexibility of dividends. It requires a bit more planning, but for a financially literate physician, it can be fine-tuned as circumstances change. Early in your career, you might lean more on salary (to build RRSP, pay down mortgages, prove income for loans (Salary vs. Dividends: Which should you choose and why? | Knit People Small Business Blog), buy insurance (Salary versus dividends for health care professionals)). In mid-career, you might shift toward more dividends (once loans are smaller and RRSP room is ample, and as corporate investments grow). Near retirement, you might again adjust, perhaps taking dividends to use lower brackets or a salary if needed to top up an IPP. The hybrid model gives maximum adaptability year-by-year.

Conclusion

For incorporated physicians in Canada, the salary vs. dividends decision is not one-size-fits-all – it’s a continuum that must be tailored to individual goals and life stages. Here’s a concise recap of the trade-offs:

  • Salary offers simplicity and certainty: predictable cash flow, source withholding, CPP accrual, and RRSP/IPP eligibility – at the cost of higher immediate personal tax and CPP outlay. It is favored for establishing income (e.g., for mortgages), securing insurance, and building registered retirement savings (Salary vs. Dividends: Which should you choose and why? | Knit People Small Business Blog) (Salary versus dividends for health care professionals).

  • Dividends offer tax deferral and flexibility: lower tax upfront (corporate rate) and control of when income is taken, potentially achieving a lower overall tax rate if well managed. Dividends avoid CPP/EI costs and allow income-splitting in limited cases (e.g., with a spouse under prescribed conditions). However, they do not build RRSP room or CPP credits and demand discipline to handle taxes and insurance needs () ().

  • 2025 Tax Landscape: Current tax rates slightly favor taking some income as dividends in many provinces (due to near-integration with a small dividend edge at top brackets) (Combined Top Marginal Tax Rates For Individuals—2025). Yet the advantage is marginal, and looming issues like the passive income grind can claw back benefits if too much is retained (The Passive Investment Income Rules: Understanding the Impact on Your Business | The Link Between). New rules (higher capital gains inclusion) underscore the need to revisit strategies regularly as laws evolve (Combined Top Marginal Tax Rates For Individuals—2025).

  • Holistic Planning: It’s rarely all salary or all dividends forever. Most physicians use a hybrid approach, adjusting over time. Early career might emphasize salary (to prove income and start retirement savings). Mid-career might introduce more dividends (once the basics are covered and the focus shifts to investing surplus via the corp) (Salary versus dividends for health care professionals). In retirement, without active business income, compensation will naturally be all dividends or distributions from the corporation (Salary versus dividends for health care professionals). Understanding the “why” behind each component – from tax rates and integration to CPP, RRSP, insurance, and estate effects – allows you to purposefully decide the mix each year.

  • Professional Advice: Tax rules are complex and change frequently. Work with a CPA or financial advisor who understands physician corporations. They can run projections to quantify the differences (many firms have integrated tax calculators to show combined personal/corporate tax under various scenarios). The right answer for one physician might be different for another, depending on income level, province, family situation, and goals. As one accounting firm noted, “tax optimization planning for business owners and high-net-worth individuals is highly complex and requires professional guidance.” (2025 Ontario Combined Tax Rates and Key Updates | Bateman MacKay) Given the stakes (tens of thousands in taxes or benefits), a custom plan is worth it.

By considering all the facets – immediate taxation, deferred taxation, retirement funding, government benefits, insurance coverage, estate outcomes, and practical finance needs – you can strike a balance between salary and dividends that maximizes your financial well-being. The good news is that with careful planning, an incorporated physician can enjoy tax-efficient income today, financial security tomorrow, and flexibility to adapt as life unfolds. Remember that you can revise your remuneration strategy annually; it’s not an irrevocable election. Stay informed (as you’ve done by reading this report), consult your advisors, and you’ll be well equipped to make the best decision each year on how to pay yourself from your corporation.

Sources:

David Wiitala
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