Corporate tax
Salary or dividends for an incorporated physician in 2026?
Integration makes the tax cost of salary and dividends close. What separates them is RRSP room, CPP, HOOPP eligibility and the passive income grind.
7 min read
Physicians
Incorporated physicians
Money is collecting in the corporation. What now?
If this is you
- You pay yourself out of habit, and nobody has put salary and dividends beside each other with your numbers in them.
- The corporate account keeps growing, and you do not know when the $50,000 passive income rule starts costing you the small business rate.
- HOOPP opened to incorporated Ontario physicians in 2025 and it is still sitting on your list, unread.
What changes after a review
- A pay-yourself plan that names the RRSP room a salary buys, the CPP cost it carries, and where HOOPP fits.
- A corporate investing plan that either keeps adjusted aggregate investment income under $50,000 or crosses it on purpose.
- One page your accountant can read before the year end instead of finding out after it.
Salary vs. dividends
Compare paying yourself salary vs. dividends from your professional corporation.
Illustration only. Figures use Ontario 2026 rates; see the assumptions.
Total tax — salary
$76,559
Total tax — dividends
$65,528
- Total tax: Salary $76,559, Dividends $65,528
- Retained in corp: Salary $103,441, Dividends $114,472
On these numbers, dividends leaves about $11,032 more after tax.
| Salary | Dividends | |
|---|---|---|
| Personal tax | $53,560 | $30,428 |
| CPP | $9,293 | $0.00 |
| Corporate tax | $13,706 | $35,100 |
| Retained in corporation | $103,441 | $114,472 |
| Net to you | $120,000 | $120,000 |
| RRSP room created | $32,077 | $0.00 |
Assumptions
- 2026 tax year. Sources: CRA T4127 Payroll Deductions Formulas, 122nd Edition, effective Jan 1 2026 (https://www.canada.ca/content/dam/cra-arc/formspubs/pub/t4127-jan/t4127-01-26e.pdf: federal K/V table, Ontario V-table, Ontario surtax V1 formula, Table 8.18 Ontario BPA) and CRA's 2026 indexation adjustment page (https://www.canada.ca/en/revenue-agency/services/tax/individuals/frequently-asked-questions-individuals/adjustment-personal-income-tax-benefit-amounts.html: federal bracket thresholds and BPA). Verify each January.; Ontario 2026 Budget, Annex (https://budget.ontario.ca/2026/annex.html): small business CIT rate cut from 3.2% to 2.2% effective July 1, 2026, prorated for taxation years straddling that date; combined federal+Ontario small business rate falls from 12.2% to 11.2%. Federal small business rate (9%) and general combined rate (26.5%) unchanged, no 2026 change announced.; CRA line 40425, Federal dividend tax credit (https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-40425-federal-dividend-tax-credit.html) for gross-ups and federal credit rates (unchanged for 2026); Ontario 2026 Budget Annex (https://budget.ontario.ca/2026/annex.html) confirms the Ontario non-eligible dividend credit stays 2.9863% through 2026, dropping to 1.9863% only from Jan 1 2027..
- Assumes no other personal income unless supplied via otherPersonalIncome.
- CPP (employee + employer) is treated as a cost inside totalTax for the salary path, even though it purchases future CPP retirement benefit entitlement rather than being a pure tax.
- The 11.7 per cent combined small business rate is a calendar-2026 blend of 12.2 per cent to 30 June 2026 and 11.2 per cent after it, because Ontario's lower rate drops on 1 July 2026. Exact proration for a fiscal year straddling that date is not modelled.
- Ignores the Ontario Health Premium on personal income.
- Dividends are assumed non-eligible, paid out of income already taxed at the small business rate.
- RRSP room created is a tax deferral, not a tax saving — contributions are still taxed on withdrawal.
Worth reading first
Corporate tax
The $50,000 passive income rule and your small business limit
How passive investment income above $50,000 grinds a professional corporation's small business limit, what the grind really costs, and what to do about it.
6 min read
Corporate tax
How to take money out of your professional corporation
The six routes out of an Ontario professional corporation, what each one costs, and the order most physicians and dentists should use them in.
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