Dividend vs Salary Ontario Calculator

Understanding the difference between dividend income and salary is crucial for financial planning in Ontario. This calculator helps you compare the after-tax income from both sources, considering Ontario's tax rates and deductions.

How the Dividend vs Salary Calculator Works

The calculator compares the after-tax income from dividends versus salary in Ontario. It accounts for:

Federal and provincial tax rates
Canada Pension Plan (CPP) and Employment Insurance (EI) deductions for salary
Dividend tax credits and non-refundable tax credits
Eligible dividends and non-eligible dividends

The formula used is:

After-tax salary income = Salary - (Federal tax + Provincial tax + CPP + EI)

After-tax dividend income = Dividend income - (Federal tax + Provincial tax + Dividend tax credits)

Use the calculator on the right to input your salary and dividend amounts to see the comparison.

Key Differences Between Dividends and Salary

Tax Treatment

Dividends are taxed differently than salary income. Eligible dividends are taxed at a lower rate than non-eligible dividends. Salary income is taxed at progressive rates.

Deductions

Salary income has deductions for CPP and EI, while dividend income does not have these deductions.

Income Reporting

Dividends are reported on T5 slips, while salary is reported on T4 slips.

Withholding

Dividends may have withholding tax applied by the issuer, while salary has withholding for payroll taxes.

Ontario Tax Rates for Dividends and Salary

As of 2023, Ontario has the following tax rates:

Salary Income Tax Rates

Income Bracket	Marginal Rate
Up to $49,020	5.05%
$49,020.01 to $98,040	9.15%
$98,040.01 to $150,000	11.16%
$150,000.01 to $220,000	12.16%
Over $220,000	13.16%

Dividend Tax Rates

Eligible dividends are taxed at 15.02% (federal) + 13% (Ontario) = 28.02%

Non-eligible dividends are taxed at 38.02% (federal) + 13% (Ontario) = 51.02%

Note: These rates are subject to change. Always verify with the latest tax tables.

Example Calculation

Let's compare a salary of $60,000 with $6,000 in eligible dividends.

Salary Calculation

Federal tax: $60,000 × 9.15% = $5,490

Provincial tax: $60,000 × 13% = $7,800

CPP: $60,000 × 5.95% = $3,570

EI: $60,000 × 1.66% = $1,000

Total deductions: $5,490 + $7,800 + $3,570 + $1,000 = $17,860

After-tax salary income: $60,000 - $17,860 = $42,140

Dividend Calculation

Federal tax: $6,000 × 15.02% = $901.20

Provincial tax: $6,000 × 13% = $780

Total tax: $901.20 + $780 = $1,681.20

After-tax dividend income: $6,000 - $1,681.20 = $4,318.80

Comparison

Total after-tax income: $42,140 (salary) + $4,318.80 (dividends) = $46,458.80

This shows how combining salary and dividends can provide a higher after-tax income than salary alone.

Frequently Asked Questions

How do dividends compare to salary in Ontario?: Dividends are generally taxed at lower rates than salary income, especially for eligible dividends. However, salary provides more benefits like CPP and EI deductions.
Are dividends taxed differently than salary?: Yes, eligible dividends are taxed at a flat rate of 28.02%, while salary is taxed at progressive rates. Non-eligible dividends are taxed at 51.02%.
Can I claim dividend tax credits?: Yes, you can claim dividend tax credits if you meet the eligibility criteria, which include having a net capital gain and meeting the dividend income threshold.
How do I report dividends and salary income?: Dividends are reported on T5 slips, while salary is reported on T4 slips. Both should be included in your tax return.
What are the benefits of combining salary and dividends?: Combining salary and dividends can provide a higher after-tax income, especially if you have eligible dividends. It also offers the benefits of salary income like CPP and EI deductions.