Keep More of What You Earn: A Conversational Guide to Advanced Tax Strategies for Canadian Business Owners

Running a successful company in Canada means you’re constantly balancing growth, people, and of course, taxes. We spend our days translating complicated rules into plain English for our clients, and every time we shave even a single percentage point off someone’s tax bill, it’s money that can go back into hiring, expansion, or simply sleeping better at night. Below is the roadmap we share with founders and professional-practice owners who are ready to move beyond “basic bookkeeping” into true, long-term tax planning

Start With the Structure

If your business is clearing more than about $ 100k in annual profits, operating as a Canadian-Controlled Private Corporation (CCPC) is almost always worth investigating. Why? Two big reasons:

Small-business rate.

The first $ 500k of active business income can be taxed federally at just 9 percent

Liability protection and tools.

Once you’re incorporated, you unlock every other strategy in this article, including holding companies: Individual Pension Plans, corporately owned life insurance*, the Lifetime Capital Gains Exemption, and so on. In other words, incorporation isn’t just about shaving tax today; it’s the doorway to an entire toolkit you’ll want available as the business matures.

How to Pay Yourself (and Why It Changes Every Year)

Salary is deductible to the corporation, generates RRSP room, and counts toward CPP. Dividends avoid CPP and paperwork but don’t create RRSP space. Most owners I work with use a blend that shifts over time. Example: one founder in her early 40s leans heavier on salary because she’s stuffing an Individual Pension Plan (more on that shortly), whereas a 30-something Service as a Software (SaaS) owner with minimal living costs is pulling mostly dividends to keep cash inside the company for growth.

Rule of thumb: revisit the mix each year. Tax brackets move, CPP changes, and your personal cash needs evolve.

The Holdco: Your Corporate “Fort Knox”

Picture your operating company (Opco) as the busy storefront and your holding company (Holdco) as the safe in the back room. Excess cash moves from Opco to Holdco by way of tax-free inter-corporate dividends. This Opco-to-Holdco dividend strategy helps

• Shield profits from operational lawsuits and creditors
• Keep passive income from eating into the small-business deduction
• Create a bucket for real estate, marketable securities, or even the down payment on your next venture

Bonus: When it’s time to sell, your Opco’s shares have a better shot at qualifying for the Lifetime Capital Gains Exemption because the “passive clutter” lives in the Holdco, not the operating company.

The $1.25 Million LCGE Multiply, Then Purify

Every Canadian can shelter up to $1.25 million in capital gains on the sale of qualified small-business shares. With some foresight, you can spread that benefit across a spouse and adult kids by:

• “Freezing” today’s value into preferred shares
• Issuing new growth shares to a family trust
• Letting future growth accrue to each beneficiary’s personal LCGE limit

The catch? For 24 months before the sale, more than half of your Opco’s assets must be tied to active business. So, keep an eye on that balance sheet and “purify” regularly, usually by sliding extra cash or portfolio investments into your Holdco.

Income Splitting That Still Works After TOSI

The 2018 Tax on Split Income rules didn’t kill income splitting; they simply tightened the proof required. The easy wins that remain:

• Reasonable salaries to families who do real work
• 20-hour rule dividends to any adult logging consistent time in the business
• Prescribed-rate loans and spousal RRSPs when you’re the only one in the trenches

Bottom line: keep timesheets, job descriptions, and market-rate comparisons on file. Paperwork is boring, but so is a CRA reassessment.

Individual Pension Plans (IPPs): RRSPs on Steroids

If you’re 45 plus, consistently pay yourself a T4 salary, and the company has predictable cash flow, an IPP can allow far larger fully deductible contributions than a regular RRSP. It even lets you buy back “past service,” transferring a chunk of retained earnings straight into your personal retirement plan without triggering dividend or payroll tax.

Yes, the actuarial work costs more than an off-the-shelf RRSP, but the tax savings (and creditor protection) generally dwarf the fees.

Corporately Owned Life Insurance*: More Than Just a Death Benefit

Corporately Owned Life Insurance*: More Than Just a Death Benefit

A permanent policy owned by the company lets excess cash grow tax-deferred. When the insured passes, most of the payout flows into the Capital Dividend Account (CDA) and can then be paid to Canadian shareholders tax-free. This strategy is  used to fund buy-sell agreements, equalize estates between kids in and out of the business, and replace passive portfolios that were grinding down the small-business rate.

Capital Dividend Account 101

Remember that CDA I just mentioned? Think of it as a notional bank that tracks tax-free amounts inside a corporation. Half of every capital gain, plus those life-insurance* proceeds, go in. File one election (Form T2054) when you draw it out, and shareholders pay zero personal tax. Just never overdraw; the penalty is 60 percent of the excess.

Accelerated CCA: Instant Cash-Flow Boost

Under the Accelerated Investment Incentive, many assets purchased before 2028 qualify for up to 150 percent of normal first-year depreciation, and the half-year rule disappears: a bigger write-off now, lower tax this year, and more cash to reinvest.

Innovation Credits: Just Ask…

• Federal SR&ED. Up to 35 percent refundable on R&D payroll and materials (and likely moving to a higher spending cap).
• Provincial stack. Manitoba, for instance, adds another 15 percent for R&D, 40 percent for interactive digital media, and 9 percent for manufacturing equipment.

If you’ve got engineers, developers, or process-improvement nerds on payroll, chances are good you’re already doing SR&ED-eligible work without realizing it.

Quick FAQ

What’s the cheapest way to pay myself?

It depends salary maximizes RRSP/IPP room, dividends dodge CPP, and the sweet spot shifts yearly.

How do I keep the 9 percent small-business rate?

Move passive cash and investments into a Holdco so your operating company’s income stays “active.”

Can life insurance* proceeds come out tax-free?

Yes, if you own the policy corporately and elect to pay them via the CDA.

Is SR&ED only for biotech?

Nope. Any systematic attempt to solve a technical problem can qualify software, ag-tech, advanced manufacturing, and more.

Putting It All Together

None of these tactics lives in a silo. How you pay yourself affects your ability to fund an IPP, which changes how much cash piles up in the company, which then nudges how aggressively you need a Holdco or COLI. The best plan is holistic, reviewed annually, and documented like your future depends on it, because it does.

Need a hand? Our team lives and breathes this stuff. We’re happy to run the numbers, map the structure, and do the paperwork so you can stay focused on running (and growing) the business you love.

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Mitchell Cathcart, Marketing Assistant, Kondwelani Kalinda, Associate Investment Advisor and Grant White, Portfolio Manager at Endeavour Wealth Management with iA Private Wealth, an award-winning office as recognized by the Carson Group. Together, Endeavour Wealth Management provides comprehensive wealth management planning for business owners, professionals and individual families.

*Insurance products and services are offered through Endeavour Wealth Management Inc, an independent and separate company from iA Private Wealth Inc. Only products and services offered through iA Private Wealth Inc. are covered by the Canadian Investor Protection Fund.

This information has been prepared by Mitchell Cathcart, Marketing Assistant, Kondwelani Kalinda, Associate Investment Advisor and Grant White, Portfolio Manager for iA Private Wealth and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor can open accounts only in the provinces in which they are registered.  

iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and Canadian Investment Regulatory Organization. IA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.

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