Year-end tax planning

Registered plans remain some of the most effective tax planning tools available to Canadians, including business owners. Depending on your goals, consider how best to maximize contributions to your Registered Retirement Savings Plan (RRSP), Tax-Free Savings Account (TFSA), First Home Savings Account (FHSA), or Registered Education Savings Plan (RESP). RRSP and FHSA contributions are generally deductible, while TFSA withdrawals are generally tax-free. An FHSA can provide the best of both worlds, offering a deduction for contributions and tax-free withdrawals when used to purchase a qualifying first home, subject to the applicable rules.  

Each plan serves a different purpose. RRSPs are used to defer tax and save for retirement. TFSAs provide flexible, tax-free growth and withdrawals, with an additional $7,000 contribution room in 2026 for eligible Canadians. FHSAs can help first-time home buyers save for a future purchase, with annual contribution room of up to $8,000 and a lifetime limit of $40,000. If you are saving for a child's post-secondary education, RESP contributions may attract Canada Education Savings Grants of up to 20% of annual contributions, generally up to $500 per year (up to $7,200 of lifetime maximum grant per child), with unused grant entitlements available to be carried forward. 

Where you have already maximized your own registered plans, consider whether gifting funds to an adult child may help them take advantage of available FHSA contribution room. In the right circumstances, this can help maximize tax-efficient family wealth accumulation while assisting with the purchase of a first home.  

If you or your corporation realized capital gains from non-registered investments in 2026, consider reviewing your portfolio before year-end. In some cases, realizing losses before year-end can also provide an opportunity to rebalance your investment portfolio while improving your overall tax position. 
If you sell investments with accrued losses, it generates capital losses that can offset capital gains realized in the current year, be carried back up to three taxation years, or generally be carried forward indefinitely for use against future taxable capital gains.  

Be mindful of the stop-loss rules. For example, losses could be treated as superficial losses and denied where you or an affiliated person or entity purchase the same or an identical property within a prescribed period.  

It may be worth reviewing the alternative minimum tax (AMT)  rules to understand if they apply and whether there are planning opportunities to reduce future exposure. This is especially important if you’ve recently realized significant capital gains, claimed the lifetime capital gains exemption, received substantial eligible dividends, incurred significant investment-related expenses, or made significant charitable donations. Strategies like portfolio rebalancing or holding investments through a corporation could help reduce your AMT exposure.  

If you paid AMT in a prior year, you generally have seven years to recover it as a credit against regular income tax (to the extent regular income tax exceeds AMT in those years). Where recovery appears unlikely, proactive planning may help generate sufficient regular tax to utilize the credit before it expires, such as through RRSP withdrawals or adjusting the salary-versus-dividend mix. 

If you’ve borrowed money from your corporation and the corporation isn’t charging interest, you will generally have to report a taxable benefit based on the CRA’s prescribed rate. Also, be sure to repay the loan within one year after the end of the corporation’s tax year. Otherwise, you may have to include the entire loan amount in income in the year the loan was received. This can result in a significant and unexpected tax liability.

For example, assume you borrowed $500,000 from your company on January 31, 2026, and your corporation has a September 30 year-end. If the loan remains unpaid on September 30, 2027, you’ll have to report the $500,000 as income on your 2026 personal income tax return.  

Limited exceptions may be available for certain home, company stock, or car acquisitions. However, these exceptions can be difficult to satisfy because one of the conditions requires that the loan is made because of your employment (and not because you are a shareholder).  

Remember that shareholder loan receivables are generally non-active business assets. If left outstanding, they may affect your corporation’s status as a small business corporation or qualified small business corporation (QSBC), potentially impacting access to lifetime capital gains exemption on a future sale. It can also create other tax issues, including the possible application of the corporate attribution rules. 

Compensation planning for you and your family is ultimately about balancing tax efficiency, corporate tax deferral, and your family’s cash flow needs. A year-end review can help ensure your compensation strategy continues to support both your personal and business objectives.

Once you determine your total remuneration, a key step is finding the right mix of salary and dividends. Taking a sufficient salary to maximize CPP contributions and generate RRSP contribution room continues to be an effective strategy in many situations. However, with CPP contributions continuing to rise, the decision has become more nuanced. In 2026, the combined employer and employee CPP contributions can reach nearly $9,300. Salary is deductible to the corporation, creates RRSP contribution room, and facilitates CPP participation. Dividends, on the other hand, may benefit from the dividend tax credit but don’t create RRSP room. Other factors such as AMT exposure, the value of CPP participation, and even lender requirements for a history of employment income should all be considered when determining the appropriate mix.

If other family members work in the business, the salaries paid should be reasonable, reflecting what you’d pay a non-family member for the same job. Paying reasonable compensation to lower-income family members allows the family to make use of otherwise unused lower tax brackets while providing a deduction for the business. If family members instead receive dividends, consider whether the “tax on split income” (TOSI) rules could apply, which would trigger tax at the highest marginal tax rate.  

In addition, note that bonuses accrued at year-end (regardless of whom they're payable to) must be paid within 180 days after year-end to be deductible by the corporation. If dividends are being paid, consider whether eligible dividend designations are available. Corporations with a balance in their general rate income pool (GRIP) can designate dividends as eligible dividends to the extent of GRIP, which are taxed more favourably than non-eligible dividends.  

The capital dividend account (CDA) allows a corporation to pay tax-free capital dividends to its shareholders. For many owner-managed businesses, this is one of the most appealing tax planning opportunities. CDA most commonly arises from the non-taxable portion of capital gains realized by the corporation or from receiving death benefit proceeds from life insurance. However, it’s reduced by the non-allowable portion of capital losses and capital dividends previously paid.  

Because CDA is generally determined at a particular point in time, a good rule of thumb is to consider paying a capital dividend whenever CDA is available. Otherwise, future transactions, including capital losses, may reduce or eliminate the balance. However, CDA calculations must be prepared carefully, as excessive capital dividend elections can result in significant penalty taxes.

When your business earns investment income or realizes capital gains, these amounts may be subject to additional refundable tax. However, when the corporation pays sufficient taxable dividends to its shareholders, it could trigger a refund back to the corporation.

Depending on the shareholder's marginal tax rate, paying a dividend to recover refundable tax can be tax efficient and may be close to cash-neutral when the combined tax paid by the corporation and the shareholder is considered. However, careful planning is required. For example, “non-eligible” refundable taxes can only be recovered through the payment of “non-eligible” dividends, and for shareholders in higher tax brackets, the additional personal tax on those dividends may exceed the corporate refund received.

If your corporation has refundable tax balances, year-end is an ideal time to review the amount and type of refundable taxes available, determine the most appropriate dividend strategy, and assess whether the benefits of recovering the refund outweigh the resulting personal tax consequences.

If your corporation's taxation year began after November 3, 2025 and your group includes multiple corporations, consider whether the new dividend suspension rules may apply. These rules can delay or deny a refundable tax recovery in certain circumstances and may require dividends to be paid differently than under prior planning approaches. 

The small business deduction (SBD) provides a reduced corporate tax rate on up to $500,000 of qualifying active business income and is one of the most valuable tax benefits available to small businesses. Year-end is an ideal time to estimate your corporation's taxable income, identify any associated corporations, and determine whether the full deduction remains available. Understanding your expected access to the SBD before year-end can help avoid surprises, improve cash-flow planning, and find opportunities to maximize the benefit across a corporate group. 

Access to the SBD isn’t always straightforward. The $500,000 business limit generally must be shared among associated corporations, and understanding whether corporations are associated can be unclear. In addition, access to the deduction can be reduced where corporations in the group earn more than $50,000 of adjusted aggregate investment income or where the corporate group exceeds certain asset thresholds. More complex rules, such as the specified corporate income rules, can also affect the amount of income eligible for the deduction.

Many business owners assume they can address sale or succession planning when a sale opportunity arises or when they’re ready to retire but the most effective succession plans are usually developed long before a transaction becomes imminent. A year-end review can help identify obstacles early and provide more flexibility when opportunities arise.  

For example, access to the lifetime capital gains exemption can significantly reduce taxes on a future sale, but its availability depends on the shares qualifying as QSBC shares. Because certain QSBC requirements consider the preceding 24 months, excess cash or investment assets may need to be addressed well before a sale. Proactive planning may help preserve eligibility.  

If a business transfer is happening in the near future, consider whether the intergenerational business transfer (IBT) rules or an employee ownership trust (EOT) is relevant. The IBT rules can allow a qualifying transfer to family members to be treated similarly to a sale to an arm's length purchaser, potentially allowing access to the lifetime capital gains exemption. The rules can also facilitate the use of corporate funds to finance part of the purchase price and provide access to an extended capital gains reserve, allowing tax to be recognized over a longer period. Alternatively, qualifying sales to an EOT or a worker cooperative may provide access to a special $10 million capital gains exemption, potentially making employee ownership an attractive succession option for some business owners. 

As businesses grow, structures that once worked well can become inefficient, overly complex, or misaligned with current objectives. Step back and evaluate whether your structure continues to support your commercial, tax, succession, and asset protection goals.

Consider the following questions:

• Does your structure still support your business objectives? Consider whether it continues to meet your operational, financing, and growth needs, or whether simplification or reorganization may be appropriate.
• Are valuable assets adequately protected? Real estate, investment assets, and intellectual property may warrant ownership separate from the operating business to help protect family wealth from business risks.
• Are there opportunities to simplify or improve tax efficiency? Review whether redundant corporations should be removed and whether tax losses are being used efficiently within the corporate group.
• Does the structure still support your family's succession goals? Changes in family and business circumstances may warrant considering or revisiting estate freezes, trusts and other ownership arrangements, or succession plans. If the value of previously frozen shares has declined, a “thaw and re-freeze" may also be worth considering.
• Are you prepared for a sale or an unexpected death? Proper planning can help facilitate a future sale, ensure business continuity, and provide liquidity to address taxes arising on death. 

This year’s trade and tariff developments are deepening challenges for businesses across Canada, making this a particularly important time to assess how trade-related changes may affect your business. It can influence valuation at the border, the cost of inputs used in your business, and whether your business can benefit from available support measures. It’s also important to note that you may see changes from suppliers and customers as they adapt to market conditions. The federal government has announced a package of measures that may help offset some of these impacts, including financing, workforce support, trade support, tariff relief, and assistance programs.

As the trade and tariff environment continues to evolve, having access to reliable and timely information and engaging in proactive planning is an important part of being prepared. A first step is to stay current on the most recent updates and measures that may be available to your business. Related tax planning also requires monitoring broader economic and international developments and considering how those changes may impact your business internally, such as costs, suppliers, contracts, pricing, and operations, as well as external impacts (e.g., customer demand, sales, competitiveness, and market share).  

Tariff impacts aren’t always immediate; they can gradually affect margins, cash flow, pricing decisions, and business strategy over time. Even if your business hasn’t yet felt the impact of tariffs, consider where those impacts could arise. This may include reviewing your operations, assessing whether key inputs, vendors, or suppliers could be affected directly or indirectly, and considering whether any available support measures could benefit your business. Businesses may also wish to review contractual arrangements, particularly where tariff-related costs could affect pricing provisions or other commercial terms.  

The federal government recently  proposed the Productivity Mega Deduction, which would allow many businesses to immediately deduct the cost of capital investments acquired after September 14, 2026, subject to various conditions. While buildings would generally remain excluded, a much broader range of capital property could qualify for immediate expensing. In addition, certain manufacturing and processing buildings and expansions may instead qualify for temporary immediate expensing under a proposed measure in Bill C-31.

By allowing more capital expenditures to be deducted immediately rather than over a number of years, the measure may significantly improve the after-tax cash flow associated with business expansion and investment decisions. If your business is considering significant capital expenditures, discuss with your advisor how this new incentive could fit into your growth and expansion plans.