General information only — not financial advice for your situation.
This is a learning tool. Always check CRA My Account records and talk to a qualified professional for your own numbers.
Plain English
When you work for yourself, you don't have an employer splitting your CPP bill. You pay both halves — about 11.9% of your earnings. That's a big chunk of money on top of income tax. An RRSP lets you deduct your contributions from your income, which lowers how much tax you owe. It's one of the best tools to balance out that heavier tax load. But there's a catch: you need to pay yourself a salary (not just dividends) to create RRSP room. No salary = no RRSP room.
You're an incorporated consultant paying yourself a $120,000 salary. Your double CPP costs about $8,068 (11.9% on pensionable earnings). A $21,600 RRSP contribution (18% of $120,000) at a 43.41% combined rate gives you a $9,377 refund — more than covering the extra CPP cost.
Show the analysis
Self-employed taxpayers remit CPP at the combined employer-employee rate of 11.9% on base pensionable earnings (up to the YMPE). This is partially offset by a deduction on the employer-equivalent half, but the net cash outflow is significantly higher than for T4 employees. RRSP deductions at combined marginal rates of 43%+ provide substantial relief. The critical structural constraint is ITA s.146: RRSP room = 18% of prior-year earned-income. Corporate dividends do not qualify as earned-income, so salary-only compensation strategies are necessary to generate room.
Salary: $120,000. RRSP room generated: $120,000 × 18% = $21,600. RRSP refund at 43.41% (Ontario, income above $117,045): $21,600 × 43.41% = $9,377. Double CPP cost (approximate): $8,068. Net position after RRSP refund: +$1,309 ahead of the CPP burden.
Edge cases
- Paying yourself only via non-eligible dividends generates zero RRSP earned-income — you must draw T4 salary to create room.
- Consider a salary/dividend split: enough salary to maximize RRSP room ($188,333 for the $33,810 limit), remainder as dividends for integration efficiency.
Keep exploring
About this site
Every number on this site is sourced from CRA publications, the Income Tax Act, or provincial fiscal releases. We show the math, cite the sources, and never tell you what to do with your money.