How it works
Salary is deductible to the corporation, so it never gets taxed corporately, only personally. Dividends are paid out of income the corporation has already paid tax on. The calculator applies that ordering: salary comes off first, the remainder is taxed at the corporate rate, and what survives is paid as a dividend and taxed personally again.
That is why the two routes differ at all, and why the answer depends on the relationship between three rates rather than on any one of them.
Why you enter the rates yourself
Corporate and personal tax rates vary by province and by income level, and the effective rate on dividends depends on whether they are eligible or non-eligible and on the dividend tax credit that applies. A calculator that assumed one set of rates would give a confidently wrong answer to most of the people using it.
Reasonable starting points: the small-business corporate rate in most provinces sits in the low double digits, and your personal average rate on salary is lower than your marginal rate, being total tax divided by total income, not the rate on your last dollar.
What the calculator does not include
- The annual RRSP dollar maximum. The RRSP figure is 18% of the salary portion, which is the room that salary generates. The current year's cap may be lower, so check it before acting.2
- CPP contributions. Salary requires both the employee and employer share, which is a real cost the net-cash figure does not deduct, and a real benefit, since it builds CPP entitlement that dividends never do.3
- Payroll administration, source deductions and the accounting cost of running salary.
- The passive income grind on the small business deduction, which matters once a corporation holds a substantial investment portfolio.
- Mortgage qualification, where salary is usually simpler to document than dividends.
These omissions are deliberate: adding them would require assumptions about your province, your corporation's investment income and your lender. They are exactly the factors that make the real decision worth talking through.
How the arithmetic is checked
The calculation is covered by a test suite that asserts against hand-worked cases, including that an all-salary payout leaves no corporate income to tax, that dividends generate no RRSP room, and that a zero-profit corporation produces zero rather than a negative number. The tests run before every commit.
Sources
- Canada Revenue Agency, How contributions affect your RRSP deduction limit (accessed 2026-07-28)
- Canada Revenue Agency, MP, DB, RRSP, DPSP, ALDA, TFSA limits, YMPE and YAMPE - current year dollar limits (accessed 2026-07-28)
- Government of Canada, Canada Pension Plan contributions (accessed 2026-07-28)
About the author
Calgary-based Certified Financial Planner, holding the CFP designation since 2002. He acts as an expert witness and litigation analyst for the legal community, and has served on the boards of the Alberta Insurance Council and the Estate Planning Council of Canada.
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