Salary vs Dividend in 2027: The CPP Cut and Ontario’s Lower Dividend Tax Credit

The salary vs dividend 2027 decision looks different from 2026 for Ontario owner-managers. Three changes shape it. The base CPP rate is scheduled to fall on January 1, 2027, which would make salary cheaper. Ontario’s non-eligible dividend tax credit drops from 2.9863% to 1.9863% of the grossed-up dividend on January 1, 2027, which makes non-eligible dividends cost more. And since July 1, 2026, the combined federal and Ontario rate on the first $500,000 of active business income has been 11.2%.

At the top rate, per $100,000 of active business income, and assuming your CPP is already at its maximum, salary leaves you $46,470. A non-eligible dividend paid in 2027 leaves you $45,386, so salary is ahead by $1,084. Paid in December 2026 instead, the same dividend leaves you $46,407, which is $1,021 more than in 2027.

Those are top-bracket figures. Your bracket, your cash needs and the value of leaving money in the corporation can change the answer. This guide shows the numbers, explains what each route gives you and ends with a checklist for December 2026. For the rates behind the CPP change, see our explainer on the CPP contribution rate cut for 2027.

The Numbers That Matter

What changes for owner pay in 2027

Status is shown as of October 2026.

The scheduled CPP cut would make salary cheaper

The base CPP rate is scheduled to fall from 9.9% to 9.5% on January 1, 2027. The first additional CPP rate stays at 1% each. So the total rate on salary up to the YMPE is scheduled to drop from 5.95% to 5.75% each, for you and for your corporation. As the owner, you bear both shares. Bill C-30 legislated the cut and received Royal Assent on June 18, 2026. It comes into force by order in council after provincial consent, and that order was not confirmed as of October 2026.

Ontario dividend tax credit 2027: non-eligible dividends cost more

Non-eligible dividends are generally the dividends paid from income taxed at the small business rate. For tax purposes, the dividend is grossed up by 15%. You then claim a federal credit of 9.0301% and an Ontario credit, both on the grossed-up amount. The federal credit does not change. The Ontario credit falls from 2.9863% to 1.9863% of the grossed-up dividend on January 1, 2027. Bill 97, the same Ontario bill that cut the small business rate, made this change. It received Royal Assent on April 24, 2026.

A drop of one percentage point on the grossed-up amount equals 1.15% of the cash dividend, because of the 15% gross-up. That matches the 1.15-point rise in the top combined rate on non-eligible dividends, from 47.74% in 2026 to 48.89% in 2027. The Ontario dividend tax credit 2027 change applies to every non-eligible dividend paid on or after January 1, 2027, including dividends paid out of retained earnings from earlier years.

The corporate side: 11.2% on the first $500,000

Ontario cut its small business rate from 3.2% to 2.2% on July 1, 2026. The combined federal and Ontario rate on the first $500,000 of active business income fell from 12.2% to 11.2%, and associated corporations share that $500,000 limit. A taxation year that straddles July 1, 2026 is prorated by days. Our explainer on the July 1, 2026 Ontario rate cut sets out the change, and our Ontario small business rate proration guide works through year-ends.

Salary vs dividend 2027: the top-bracket numbers per $100,000

This table follows $100,000 of active business income to your pocket at the top Ontario rates. It assumes your CPP is already at its maximum for the year, so the extra salary carries no CPP. Salary is deductible to the corporation, so it bears no corporate tax. A dividend is paid out of income after corporate tax.

The salary row uses the top 2026 rate on ordinary income, 53.53%, for both years. Amounts kept are rounded to the dollar.

The table shows three points. In 2026, from income taxed at 11.2%, salary and a non-eligible dividend are close: $46,470 against $46,407, a gap of $63. In 2027, the lower Ontario credit widens that gap to $1,084 in favour of salary. And income taxed at 12.2% before July 1, 2026 does a little worse as a dividend, because more corporate tax was paid first.

This is the core of the salary vs dividend 2027 answer for a top-bracket owner who takes all the cash out. If your corporation has a taxation year that straddles July 1, 2026, its rate for that year is a blend of 12.2% and 11.2%, prorated by days. We work out your blended figure from your actual year-end.

The December 2026 dividend timing point

If you plan to take a non-eligible dividend early in 2027, think about paying it in December 2026 instead. At the top rate, paying a few weeks sooner leaves you $1,021 more per $100,000 of income taxed at 11.2%.

Before you act, weigh four points.

• The personal tax comes sooner. A December 2026 dividend is taxed on your 2026 return, not your 2027 return. Paying that tax a year earlier has a cost of its own, which can offset some or all of the $1,021.
• Use it only for cash you need anyway. Money you do not need can stay in the corporation, having borne only the 11.2% corporate tax, until you need it. That deferral can be worth more than the timing gain.
• Watch your 2026 bracket. The $1,021 figure is at the top rate. If a December dividend moves you into a higher 2026 bracket, the result changes.
• Pay it, do not just declare it. A dividend is taxed in the year it is paid, and crediting it without conditions to your shareholder loan account generally counts as payment.

Salary at the YMPE: CPP cost in 2026 and 2027

The scheduled CPP cut would matter on the first slice of salary, up to the YMPE. Take an owner-manager whose salary equals the 2026 YMPE of $74,600, and a second case at the 2026 YAMPE of $85,000. Because you own the corporation, the combined employee and employer cost is what counts.

The saving would be modest: $284.40 a year for you and your corporation together in this illustration. On its own, it is unlikely to change a salary decision. If the cut comes into force, it lowers the cost of the CPP pension credit that each dollar of salary up to the YMPE buys. Your corporation deducts its share of CPP along with your salary.

What salary gives you that dividends do not

The top-rate table compares after-tax cash only. A salary vs dividend 2027 decision should also count what each route builds for you. Salary brings three things that dividends do not.

• RRSP room. New RRSP room is 18% of the previous year’s earned income, up to the annual limit. Salary is earned income. Dividends are not. A 2027 salary builds room you can use in 2028.
• CPP pension credit. CPP contributions on salary earn credit toward your CPP retirement pension. Dividends carry no CPP and earn no credit. The scheduled cut would lower what you pay, and it would not alter how base CPP benefits are calculated.
• A deduction for the corporation. Salary, and the corporation’s share of CPP, are deductible. That is why the salary row carries no corporate tax.

What dividends give you that salary does not

• No payroll for your own pay. No source deductions or PD7A remittances on your pay. The corporation reports the dividend on a T5 slip.
• No CPP. You avoid the CPP cost on both sides, and you also give up the pension credit.
• Timing. You can pay a dividend when cash allows and leave the rest in the corporation.

Neither route wins for everyone. You can also mix them: salary up to a level that meets a goal, such as RRSP room or CPP credit, and dividends above it. Our general salary vs dividend guide covers the basics.

Why lower brackets and deferral change the answer

Our figures are for the top Ontario bracket. Below it, and when you do not need all the cash, the answer can change.

Lower brackets

At lower incomes, the personal rates on salary and on non-eligible dividends are both lower, and they do not move in step. The gap between the two routes at your income can be larger, smaller or reversed compared with the top-bracket table. The Ontario credit is a flat share of the grossed-up dividend, so its cut also raises the tax on non-eligible dividends below the top bracket, wherever you have Ontario tax for the credit to reduce. We do not publish lower-bracket figures here, because they depend on your full income. We model your own numbers instead.

Deferral

Income you leave in the corporation pays 11.2% on the first $500,000 of active business income. Personal tax comes only when you pay it out. If you do not need the cash, leaving it in the corporation defers that personal tax. Depending on how long the money stays and what it earns, the deferral can be worth more than the $1,021 and $1,084 differences in our table. Surplus that builds up raises its own questions, which our holding company tax planning work addresses.

Cash needs and other factors

Salary gives a steady flow with tax withheld at source. Dividends have no tax withheld, so you set aside the personal tax yourself. The right mix also depends on your corporation’s cash flow, and on whether you prefer a fixed monthly amount or lump sums. Your own salary vs dividend 2027 answer weighs all of these, not just the top-rate table.

Owner pay planning 2027: a December 2026 checklist

Owner pay planning 2027 should start before December 31, 2026. Work through these steps with your accountant.

1. Estimate your 2026 personal income. Add salary, dividends and other income so far, and project the rest of the year. Your bracket decides whether the top-rate figures apply to you.
2. Check which corporate rate applies. A taxation year that begins on or after July 1, 2026 pays 11.2% on the first $500,000 of active business income. A year that straddles July 1, 2026 pays a blend of 12.2% and 11.2%, prorated by days.
3. Decide on a December 2026 dividend. Consider it only for cash you need early in 2027. If you go ahead, pay it, or credit it without conditions to your shareholder loan account, by December 31, 2026, and record it.
4. Set your 2027 salary. Decide what you want salary to do: build RRSP room for 2028, earn CPP credit or provide steady cash. Then set the amount and the pay schedule.
5. Confirm the CPP status before your first 2027 pay date. Check that the order in council is in place, and load the 2027 YMPE and YAMPE once they are published.
6. Use 2026 rates on 2026 slips. Your 2026 T4 reports CPP at 5.95%. Dividends paid or credited in 2026 go on 2026 T5 slips.
7. Review the plan in 2027. Revisit your salary vs dividend 2027 mix once the 2027 CPP limits are published and your income for the year is clearer.

Frequently Asked Questions

How Gondaliya CPA helps

We model your salary vs dividend 2027 choice for your actual income, corporate year-end and cash needs, as part of our corporate tax planning work. Then we carry it out: owner salary through our payroll services, slips through our T4, T4A and T5 preparation, and the corporate side in your year-end accounting and filings.

We work on AFFORDABLE flat fees, agreed before we start. To discuss your 2027 owner pay before December 31, 2026, please book a free consultation.

Last updated: October 2026

Editorial policy: Rates, dates and legislative status were checked against Department of Finance Canada, Canada Revenue Agency, Parliament of Canada and provincial finance sources on October 5, 2026, and reviewed by Sharad Gondaliya, CPA. We update this article when the rules change.

Disclaimer: This article is general information about Canadian tax rules as of October 2026. It is not advice for your specific situation. Please speak with a CPA before you act on it.