Salary or dividends for an incorporated physician in 2026?

If you incorporated and your accountant asked how you want to be paid, the honest answer is that the tax cost barely moves. What moves is everything the salary attaches to.

Why is the tax difference so small?

Salary is deductible to your corporation, so it reduces active business income before the combined small business rate applies, 11.7 per cent for a 2026 calendar year end (Canada Revenue Agency; Ontario Ministry of Finance). Dividends are not deductible: they come out of income the corporation has already paid tax on, and you then pay personal tax on a grossed-up amount and claim a dividend tax credit (Canada Revenue Agency).

Those two routes are built to meet in the middle. That is what integration means, and it is why nobody should expect a large number here. It is not quite a tie. Run the salary vs. dividends calculator at $400,000 of corporate income and a $150,000 personal draw and dividends come out about 2.8 points of the corporation's pre-tax income cheaper; at $300,000 and $120,000 the spread is about 3.7 points, and at $500,000 and $200,000 about 2.2. Most of that spread is the two halves of CPP, which the salary path pays and the dividend path does not. Treat it as about 2 to 4 points in favour of dividends before you count what CPP buys, not as a rounding error and not as a reason to skip salary.

So stop asking which is cheaper. Ask what each one buys.

What salary buys

Salary creates RRSP room at 18 per cent of the prior year's earned income, up to the annual dollar limit. The 2026 RRSP dollar limit is $33,810, so a salary of roughly $187,800 generates the maximum room for the next year (Canada Revenue Agency).

Salary also creates Canada Pension Plan contributions. In 2026 maximum pensionable earnings are $74,600, the basic exemption is $3,500 and the employee rate is 5.95 per cent, giving a maximum base employee contribution of $4,230.45. Your corporation pays the matching share, so at or above the maximum the base cost is about $8,461 (Canada Revenue Agency). Second additional CPP then applies at 4 per cent on earnings between $74,600 and $85,000, which is another $416 from you and $416 from the corporation. At the $187,800 salary below, the full cost is about $9,293: $4,646 withheld from you and $4,646 paid by the corporation on top of the salary. That is a cost. It is also an indexed lifetime pension you cannot outlive, which no corporate portfolio guarantees.

Salary is what makes HOOPP possible. Incorporated Ontario physicians have been able to join the Healthcare of Ontario Pension Plan since January 2025, but only where the medicine professional corporation pays employment earnings and becomes a participating employer (HOOPP). Pay yourself only in dividends and that door is closed.

Finally, salary drains active business income out of the corporation, which keeps corporate investment balances, and therefore passive investment income, lower.

What dividends buy

Simplicity, mainly. No payroll account, no source deductions, no monthly remittance deadlines, and a T5 rather than a T4.

Dividends also avoid the CPP cost, which matters if you already have maximum CPP credits from an earlier career, or if you are close to retirement and the contribution will buy very little additional pension.

And dividends are flexible. You can declare them late in the year once you know what the practice actually earned, which a salary set in January cannot do.

What a typical mix looks like

The shape is common because it stacks the benefits that only salary provides, then uses dividends for the remainder, where administration is lighter.

Put your own numbers into the salary vs. dividends calculator and change the personal draw. The crossing point moves more than most people expect.

What the payroll side actually involves

If you take salary, the corporation opens a payroll account with CRA, withholds income tax and CPP from each payment, remits both halves of CPP with the withheld tax on a schedule set by your remittance size, and issues a T4 by the end of February. Miss a remittance date and penalties apply on the amount, not on the delay, so the first late payment costs more than people expect.

If you take dividends, the corporation declares the dividend by directors' resolution, pays it, and issues a T5 by the end of February. You then pay the tax personally, usually through quarterly instalments once your balance owing crosses CRA's threshold in two consecutive years. Dividend-only physicians are the ones most often caught by an instalment interest charge in their second year of practice, because nothing was withheld at source.

Neither route is difficult. Both have a deadline that arrives whether or not you are on call that week, which is an argument for setting the pattern once a year rather than deciding month by month.

Does the answer differ for dentists?

Not in principle. A dentistry professional corporation faces the same integration arithmetic and the same RRSP and CPP consequences. The one structural difference is HOOPP, which is open to incorporated physicians and not to dentists, so the pension argument for salary is weaker on the dental side. Dentists weighing a pension should look at an individual pension plan instead, which is funded by the corporation and also requires salary.

When the usual answer changes

Three situations flip it.

If your corporation is carrying more than $50,000 of passive investment income, paying more salary reduces future corporate investment balances and slows the grind on your small business limit.

If your spouse works in the practice, paying them a reasonable salary for work actually performed is straightforward, while paying them dividends runs into the tax on split income rules.

If you are within a few years of stopping work, additional CPP contributions buy less, and a dividend-only plan combined with drawing down the corporation may suit you better.

Integration

The design principle that income earned through a corporation and paid out should cost about the same tax as income earned personally.

Earned income

The income that creates RRSP room. Salary counts, dividends do not.

Non-eligible dividend

A dividend paid from income taxed at the small business rate. It is grossed up less and carries a smaller dividend tax credit than an eligible dividend.

YMPE

Year's maximum pensionable earnings, $74,600 for 2026. The salary ceiling for base CPP contributions.

HOOPP

The Healthcare of Ontario Pension Plan, a defined benefit plan open to incorporated Ontario physicians who draw employment earnings from their corporation.

What to bring to a 20-minute review

Bring your corporation's year-end figures, the salary and dividends you took last year, your RRSP deduction limit from your notice of assessment, and a number for what your household spends. If a pension is on your mind, say so at the start, because pension eligibility is the one part of this decision you cannot fix retroactively.

Book a 20-minute review