Does it matter for the Ontario Health Premium whether I take salary or dividends?

The Ontario Health Premium is a provincial levy charged through the personal income tax system. It is calculated as a percentage of your taxable income above certain thresholds and has a maximum amount. Because it is assessed on total taxable income, both salary and dividends count toward your income for OHP purposes. The type of compensation does not exempt you from the premium.

The gross-up on dividends increases your reported income, which means dividends can push you into a higher OHP bracket even if the actual cash received is modest. For example, a non-eligible dividend has a gross-up added to it before it is included in income, and the OHP is assessed on that grossed-up amount even though the gross-up is notional. The dividend tax credit reduces your actual tax payable but does not reduce the grossed-up income used to calculate the OHP.

This is a minor consideration in most compensation decisions — the OHP amounts are modest compared with federal and provincial income tax — but it is a real difference. When your accountant calculates the effective personal tax cost of dividends versus salary, ensure the OHP and any other surtaxes are included in the model. The correct comparison is full all-in personal tax, not just the headline marginal rate.