Salary or Dividends: The Ultimate Guide for Quebec Entrepreneurs in 2025

Introduction: The Eternal Dilemma

If you’re reading this, you’re probably the owner of a incorporated company (Inc.) and wondering the million-dollar question (or at least how to save a few thousand dollars in taxes):

should I pay myself a regular salary or take dividends?

There’s no one-size-fits-all answer—“it depends” (the favorite phrase of your accountant). But in 2025, with inflation and new tax brackets, understanding the mechanics of each option is more crucial than ever to optimize both your personal finances and your business.

Let’s compare the two options like two teams facing off on the ice.

Team #1: Salary (Security and Predictability)

Choosing a salary makes you an employee of your own company. You receive a paycheck, with a T4 slip at the end of the year.

Major advantages:

• RRSP Contribution Room: This is the big win. Salary generates RRSP contribution room (18% of earned income). Dividends do not. If you rely on RRSPs for retirement, salary is your ally.

• Quebec Pension Plan (RRQ): Paying yourself a salary requires RRQ contributions. It’s an expense today, but a guaranteed, indexed pension for your future.

• Access to Quebec Parental Insurance (RQAP): Planning for a child? Only salary contributions count toward parental benefits.

• Bank Credibility: Banks love T4s. Getting a mortgage is often easier with a stable salary history than with fluctuating dividends.

The downside:

• Higher Immediate Cost: Your company pays social charges (RRQ, FSS, RQAP, CNESST). For every $1,000 you take home, the cost to the company is higher than if you took a dividend.

Team #2: Dividends (Simplicity and Flexibility)

A dividend is a distribution of company profits to shareholders. It’s the “light” method.

Major advantages:

• Administrative Simplicity: No payroll deductions to remit each month. No monthly payroll calculations. A simple check or transfer works (with a T5 slip at year-end).

• More Cash in Hand: No social contributions (RRQ, RQAP), so you keep more liquidity. Ideal for managing investments yourself without relying on public plans.

• Total Flexibility: You can pay dividends based on actual yearly profits, without a fixed commitment.

The downside:

• Impact on Child Benefits: Dividends are “grossed-up” on your tax return, artificially inflating net income and potentially reducing federal and provincial child benefits.

• No Protection: No salary means no automatic CNESST coverage and no employment insurance (rare for owners, but worth noting).

The 2025 Verdict: Why Not Hybrid?

For many Quebec entrepreneurs, the winning strategy in 2025 is not one or the other, but a smart combination of both.

Common approach:

• Pay yourself a salary enough to cover basic living costs and maximize certain contributions.

• Top up with dividends to take advantage of corporate tax efficiency.

Criteria	Salary 📄	Dividend 💰
RRSP	Generates room	No
RRQ / Retirement	Mandatory contributions	None
Management	Complex (monthly payrolls)	Simple (Transfer + T5)
Cost to Company	Higher (Social charges)	Lower
Banks / Mortgage	Highly regarded	Sometimes more complex

Conclusion

Choosing between salary and dividends shouldn’t be done hastily. It depends on your life plans: Do you have young children? Planning to buy a home soon? Disciplined with retirement savings?

Next Step: Don’t gamble with your financial future. Schedule a personalized simulation based on your 2025 numbers.