The Entrepreneur’s Guide to Paying Yourself: Salary, Dividends, and Retirement Planning

It’s easy for your retirement plan design to get deferred to later when you’re occupied with the actual demands of owning and running a business.

After you’ve covered the basics of building your product or service model, staffing up, growing your client base, establishing the outflow and inflow of cash and likely accumulating earnings in your corporation, then it’s ‘business as usual’… busy and consistent. 

For many founders, this is where questions like ‘what is wealth management for business owners’ and ‘how to do wealth management for business owners’ get pushed aside, even though these questions (and answers) form the foundation of effective business owner wealth management.

The greater questions involved in financial planning for entrepreneurs like, “what’s a reasonable salary?” and “how do I pay myself?” are often overlooked.

These decisions play a core part in wealth management for entrepreneurs and their long-term financial management.

For Canadian entrepreneurs—especially those operating through a corporation—how you pay yourself affects far more than just your income and tax bill. Salary vs. dividends, CPP contributions, and RRSP room all play a role in your long-term financial security and wealth management for business owners.

Here are some of the most common mistakes Canadian business owners make—and how better financial planning for entrepreneurs can fix them.

1. Underpaying Yourself to “Save Tax”

It’s easy to become obsessed with saving tax and keeping more for yourself. Although it doesn’t feel good to see that tax bill creep up as you become more successful, the reality is paying tax is part of a healthy society and we all need to contribute. 

The mistake:
Many incorporated owners keep personal pay artificially low to leave money in the corporation and defer tax. It can feel good in the moment, but you’re ultimately creating a bigger tax liability and could be compounding the problem. 

Why it’s a problem:

• Little or no CPP contributions, reducing future CPP benefits
• No new RRSP contribution room
• Personal cash flow can become unstable
• Lifestyle is compromised 

How better planning helps:
A reasonable salary creates CPP credits and RRSP room while still allowing tax deferral inside the corporation. The goal isn’t maximum salary—it’s intentional salary.

This structured approach is a core principle of wealth planning for business owners and long-term wealth management for business owners.

2. Paying Yourself Only Dividends

The mistake:
Some owners take all compensation as dividends because they’re taxed at a lower personal rate than traditional income. 

Why it’s a problem:

• Dividends do not create RRSP room
• No CPP contributions → lower lifetime CPP income
• Income can become irregular and depends on dividend timing 
• Future retirement income becomes harder to smooth

How better planning helps:
A blended approach—salary plus dividends—often balances tax efficiency with retirement planning. Dividends can be helpful for flexibility, but salary builds long-term benefits.

3. Ignoring CPP as Part of the Plan

The mistake:
Owners often view CPP as a “tax” to be avoided rather than a retirement tool.

Why it’s a problem:

• CPP is one of the few guaranteed, inflation-indexed retirement incomes
• No CPP means greater reliance on personal investments
• Spouses may miss survivor benefits

How better planning helps:
Intentional salary levels can optimize CPP contributions without overpaying. CPP becomes a guaranteed part of your retirement income, creating peace of mind. It may not feel like a big deal now, but as retirement gets closer the pressure to replicate your income solely off earnings and investments can be a lot to process. This is a discussion we have all the time with our clients. 

Within comprehensive wealth management for entrepreneurs, CPP is treated as a foundational, inflation-protected income stream rather than a cost to avoid.

4. Forgetting to Create RRSP Room

The mistake:
Owners focus on corporate tax deferral and forget that RRSP room only comes from earned income (salary or bonuses).

Why it’s a problem:

• Loss of tax-deferred growth opportunities
• Fewer income-splitting options later in retirement
• Heavy reliance on corporate withdrawals in the future

How better planning helps:
Setting a salary that intentionally generates RRSP room creates more flexibility later. As a business owner you need to fund your own retirement. Taking advantage of the tax deferred growth of the RRSP and the income splitting options you have with your spouse when it’s time to draw income, can make the present tax bill worth it. 

Creating RRSP room is a cornerstone of business owner wealth management and expands future options for retirement and estate planning.

5. Making Decisions Based on Last Year’s Tax Return

The mistake:
Compensation choices are driven by “what saved the most tax last year.”

Why it’s a problem:

• Ignores future marginal tax rates
• Overlooks retirement, sale, or succession goals
• Can increase lifetime taxes even if it lowers this year’s bill

How better planning helps:
Canadian tax planning works best when it looks forward, coordinating corporate tax, personal tax, CPP, and retirement income over decades—not one year at a time.

6. Treating the Corporation as the Retirement Plan

The mistake:
Owners assume retained earnings or a future business sale will fund retirement.

Why it’s a problem:

• Business value is not guaranteed
• Market or industry changes can reduce sale proceeds
• Corporate withdrawals in retirement can trigger high personal tax

How better planning helps:
Diversifying retirement assets—RRSPs, TFSAs, CPP, and corporate investments—reduces risk and creates more tax-efficient income later.

This diversification is central to wealth management for small business owners.

True wealth management for small business owners prioritizes diversification so retirement does not depend on a single asset or exit event.

The Canadian Takeaway

For incorporated business owners, paying yourself is not just a tax strategy—it’s a lifetime financial decision.

It’s also one of the most important pillars of wealth management for business owners and disciplined financial management for entrepreneurs.

The right approach:

• Balances salary and dividends
• Intentionally builds CPP and RRSP benefits
• Supports predictable personal cash flow
• Reduces lifetime tax, not just this year’s tax bill

A well-structured pay strategy ensures your corporation supports your life today—and your retirement tomorrow.

To better understand how retirement plan design fits into broader retirement and estate planning, refer to our blog on The 15-minute retirement plan for a quick checkup.

Below is a basic example that contrasts different pay structures to give you a better idea of how it could work for you. 

Salary vs. Dividends: A Simple Canadian Example

Assumptions (for illustration):

• Incorporated business owner in BC
• Corporation has sufficient profits
• Owner needs $100,000 of pre-tax corporate income for personal use
• Focus is on structure and outcomes, not exact tax rates
• CPP YMPE assumed at ~$68,500

Actual results will vary by province and calendar year, but the planning logic holds across Canada.

Option 1: Pay Yourself $100,000 as Salary

At the personal level:

• Employment income: $100,000
• CPP contributions (employee portion): ~$3,900
• CPP contributions (employer portion, paid by the corporation): ~$3,900
• RRSP room created: $18,000 (18% of salary)

Pros:

• Builds CPP entitlement
• Creates meaningful RRSP room
• Predictable, stable income
• Employer CPP is deductible to the corporation

Cons:

• Higher visible personal tax
• CPP feels expensive in the short term

Best for:
Owners prioritizing retirement savings and income stability.

Option 2: Pay Yourself $100,000 as Dividends

At the personal level:

• Dividend income: $100,000
• CPP contributions: $0
• RRSP room created: $0

Pros:

• Lower immediate personal tax
• Simple administration
• Flexible timing

Cons:

• No CPP accrual
• No RRSP room
• Retirement planning relies heavily on corporate assets

Best for:
Owners needing short-term cash flow or already maxed on retirement savings.

Option 3: Blended Approach (Often the Sweet Spot)

Example:

• Salary: $60,000
• Dividends: $40,000

Results:

• Partial CPP contributions (roughly proportional to salary)
• RRSP room created: $10,800
• More predictable income than dividends alone
• Lower CPP cost than full salary

Why this works well:

• Creates retirement benefits without overpaying CPP
• Maintains dividend flexibility
• Often smoother lifetime tax results

How Income Level Changes the Decision

Lower Income Owners (Under ~$60,000)

• Salary often makes sense to:
  
  • Build CPP early
  • Create RRSP room
  • Stabilize personal cash flow

Mid-Income Owners ($60,000–$120,000)

• Blended approach frequently optimal
• Balances tax efficiency and retirement planning

Higher Income Owners ($120,000+)

• CPP maxes out anyway
• More room for dividend-heavy strategies
• Planning shifts toward:
  
  • RRSP vs. corporate investing
  • Future retirement withdrawal tax rates

The main take away in wealth planning for business owners is that there’s no one size fits all and it’s often a blend of strategies.

The right mix will depend on:

• Your income needs
• Retirement timeline
• CPP philosophy
• Existing RRSP/TFSA balances
• Whether you plan to sell the business

Successful wealth planning for business owners often requires ongoing wealth advice for entrepreneurs to align compensation, tax strategy, and retirement goals over time.

The biggest mistake isn’t choosing salary or dividends—it’s choosing to do it alone without a long-term financial plan.

We’d love to help you along your financial journey, grab your free assessment today to better understand where you stand and how our team can help!

Charlotte Starkey is a Wealth Advisor with CI Assante Wealth Management Ltd. The opinions expressed are those of the author and not necessarily those of CI Assante Wealth Management Ltd. Please contact her at (250) 475-6700 or visit www.relaywealthadvisors.com to discuss your particular circumstances prior to acting on the information above.

The case study mentioned in this presentation is provided for illustrative purposes only and does not represent an actual client or an actual client’s experience, but rather is meant to provide an example of our process and methodology. The results portrayed is not representative of all of our clients’ experiences.

CI Assante Wealth Management Ltd. is a Member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization.