Salary is regular employment income paid to an employee or owner-manager, deductible to the corporation and creating RRSP room and CPP entitlement for the recipient.
For an owner-manager, paying yourself a salary is one of two main ways to extract money from a corporation, the other being dividends. Salary is deductible to the company, reducing its taxable income, and it builds RRSP contribution room and CPP entitlement for you, which dividends do not.
The cost is administration: salary requires a payroll account, monthly source-deduction remittances, and a T4. It also triggers CPP from both sides. Most owners use a salary-dividend mix set each year to their income needs, RRSP goals and the corporation's cash position.
An owner pays herself a $100,000 salary. The company deducts it, reducing corporate tax, and she gains RRSP room of 18% of that earned income, while the salary is subject to normal payroll withholdings.
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