Does salary or dividends work better when I am in the top tax bracket in Ontario?

Ontario's combined federal-provincial top marginal rate on employment income applies at relatively modest income levels by global standards. At the top bracket, salary and eligible dividends are taxed at high effective rates, but the after-tax result of each route through the corporation depends on the integrated rate at both corporate and personal levels.

At top rates, non-eligible dividends from a CCPC can sometimes produce slightly higher combined tax than salary at the same income level, because the small business corporate rate plus the personal tax on the dividend exceeds the corporate deduction saving plus personal tax on salary. This relationship shifts with rate changes, making it worth recalculating every year.

One strategy at high income levels is to leave excess profits inside the corporation and draw only what you need personally. This maximizes the deferral benefit — income taxed at the corporate rate and not distributed stays sheltered until you choose to take it out. The gap between the corporate rate and your top personal rate is the deferral advantage. Over many years this compounding can be significant. Reducing personal drawings to what you genuinely need, supplemented by RRSP contributions, is a common high-income owner-manager approach.