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I saw a link to a great article in old (2012) question.

http://vereecke.ca/index.php/articles/will-that-be-salary-or-dividends/

I've tried understanding the article well, but I think that the author is making a mistake in one area. That, or I am not understanding something right.

In the article, in the "Salary" example, $2,163 CPP (pension) contribution is deducted from employee's salary to go towards employee's pension plan. The company is required to match that amount with a further $2,163 that is paid from the company income to employee's CPP.

In the "Dividend" example, the author argues (and I agree), that to compare apples to apples, an equivalent $2,163 should be deducted (by employee) from employee's dividend payment and put into a savings account "like self-directed pension plan". The author further says that since this is no longer a real CCP contribution, the company is not required to match that amount.

But doesn't that mean that in "Salary" example, the employee got $4,326 invested into his pension plan (personal + corporation contribution), whereas in the "Dividend" example, employee only got $2,163 into his "self-directed pension plan"? Not apples to apples.

Employee should contribute $4,326 into his "self-directed pension plan", no?
Which means his final paycheck in "Dividend" example should be $69,799, which is only $938 more than in "Salary" example.

And if that's the case, is there still a reason to go through all the hoops of dividends vs salary?

  • I can think of 938 reasons. – David Rice Jul 7 '15 at 22:08

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