Dividends vs Wages

Dividends vs Wages

The following is an example of receiving dividends or wages from your company. The answer is that it depends on how you want to build your retirement income.
The advantages of wages are:

a) Wages increase the individual’s RRSP contribution room

b) Wages increase the CPP contributions and hence the pension you will receive when you decide to collect it

c) They can be paid to other family members as long as they are reasonable for the work performed by that family member

d) You may qualify for CPP disability pension

e) Depending on your disability coverage, you may need to pay wages to qualify for a disability payment if you become disabled. WCB includes dividends, but that may not be the case for your other coverage

f) If you are disabled or pass away, your spouse and/or children may qualify for CPP benefits.

The advantage of dividends is that the individual pays less in income taxes on dividends than on wages as dividends.

The company, however, pays more income taxes as dividends are not a tax deduction like wages are for the
company. The total taxes paid are lower when wages are paid; however, when the CPP is included, the total is less when dividends are paid.
Let’s work through two examples for 2025. Assuming there are 2 owners and they split the wages or dividends equally. The dividends are “other than eligible” dividends