Introduction

Many incorporated physicians reach the same point: their clinic income flows into their professional corporation, and now they need to decide how to pay themselves. The two main options are salary and dividends, and each affects tax planning, retirement savings, budgeting, and compliance differently.

On Reddit and in medical finance forums, doctors often ask questions like:

• “Is there a tax advantage to dividends?”
• “Can I still contribute to RRSPs if I only take dividends?”
• “What do other physicians do?”

There is no single “best” answer. The right approach depends on personal income needs, long-term planning, and how the corporation will be used for tax deferral.

This article breaks down how salary and dividends work for incorporated physicians in Canada, and how to choose what makes sense for your financial and practice goals.

Key Takeaways

• Salary creates RRSP contribution room and requires CPP contributions.
• Dividends do not generate RRSP room and do not require CPP, but count as investment income for mortgages and lenders.
• The mix of salary and dividends can optimize tax planning, retirement savings, and corporate retained earnings.
• CRA allows flexibility as long as payments are properly documented and reported.
• The right structure depends on lifestyle needs, tax planning goals, and long-term strategy.

How Paying Yourself Works as an Incorporated Doctor

Once incorporated, your earnings belong to the corporation, not to you personally. To use that money for personal income, you must pay yourself in one of two forms:

• Employment income (salary or wages)
• Shareholder income (dividends)

Both are taxed differently and trigger different administrative requirements.

Salary: How It Works and When It Makes Sense

Salary is paid as employment income and is deductible to the corporation as a business expense.

CRA Requirements

According to the CRA, employment income must follow standard payroll rules including:

• source deductions
• CPP remittance
• T4 filing at year end
  (Source: CRA, Employer Guide – Payroll Deductions)

Advantages of Salary

• Generates RRSP contribution room
• Makes T4 income visible for mortgage qualification
• Allows contribution to CPP, which provides future pension benefits
• Reduces corporate taxable income

Consider Salary If You:

• Plan to save through RRSPs
• Want predictable income
• Need T4 income for lending purposes
• Want CPP contributions as part of retirement planning

Dividends: How They Work and When They Make Sense

Dividends are paid from after-tax corporate profits.

CRA Notes on Dividends

According to the CRA, dividends must be reported on a T5 slip and declared by the corporation.

(Source: CRA, T5 Guide)

Advantages of Dividends

• No CPP required
• Simple to pay and administer
• Can reduce payroll compliance workload
• Can result in lower overall tax depending on income level and planning

Consider Dividends If You:

• Prefer flexibility rather than fixed payroll
• Are prioritizing tax deferral inside the corporation
• Do not need RRSP contribution room

Mixing Salary and Dividends: Common Strategy for Physicians

Many incorporated doctors use a blended approach to balance:

• tax efficiency
• retirement savings
• corporate retained earnings
• lender preferences

For example:

ComponentPurpose

Base salary (for RRSP and lending)

Stability + tax deduction

Additional dividends

Flexibility + simplicity

This hybrid model allows tax efficiency without sacrificing financial planning tools.

Common Mistakes to Avoid

• Paying only dividends without understanding the impact on lending
• Forgetting payroll deadlines if salary is used
• Not documenting dividends properly
• Assuming what “other doctors do” applies to your situation

FAQ

Do I need to choose one method permanently?

No. The CRA allows flexibility, but reporting must be done correctly. Most physicians adjust annually.

Is one option always more tax efficient?

Not universally. Efficiency depends on personal income needs, long-term retirement strategy, retained earnings, and planning.

Can I still qualify for a mortgage if I only take dividends?

Yes, but lenders may prefer T4 income or ask for more documentation.

Does CPP matter for physicians?

CPP participation is personal preference. Some doctors value the guaranteed income later. Others prefer private investing.

Professional Guidance Matters

Choosing between salary, dividends, or a combination is not just a tax question. It affects investment planning, retirement strategy, lifestyle, and CRA compliance.

Rotaru CPA works with medical professionals across Ontario to build tailored compensation strategies that align with financial goals and practice realities.

📍 Book a consultation to review your compensation strategy and ensure your medical corporation is optimized.