Apr 5, 2022 | Corporate Finance

Running your business as a Canadian Controlled Private Corporation (CCPC) offers a number of benefits, but not without commensurate responsibilities. One of the most important of those responsibilities is adhering to the corporate rather than the personal tax regime. As responsibilities go, this is not particularly onerous, but does require a certain degree of planning. It’s not like personal taxes, which can often be dealt with right before the deadline.

So, What Do You Need to Consider?

The simple answer is that you need to consider any money that either comes in or goes out. However, that’s a little too facile to really be treated as useful advice. After all, when it comes to taxes, how you earn and spend money is often more important than the simple amount involved. You also have to be aware of how things apply over the course of a year, so you can plan things out in conjunction with your accountant or tax preparation expert. While not the only things, here are three factors you need to consider when sitting down to plan your taxes over the course of the next fiscal year.

Small Business Deduction

The Small Business Deduction, or SBD, is one of the most important deductions available to your CCPC. The SBD exists to benefit small Canadian businesses by reducing the effective federal income tax rate for eligible businesses to 9% from 28% for the first 500,000 dollars of income. The full deduction is available to businesses with up to $10 million of taxable capital, provided that capital is employed in Canada, falling to zero for businesses with $15 million of Canadian-employed taxable capital.

It’s important to understand that the SBD doesn’t apply to all income, and in fact certain income can actually reduce the amount of the small business deduction available to your CCPC. In particular, the amount of investment income your corporation earns can have a significant impact on your eligibility for the small business deduction. As it currently stands, the new restriction does not kick in until your CCPC exceeds $50,000 in investment income. Any investment income over $50,000 reduces the deduction by a factor of 5; taking $5 from the deduction for every dollar of additional investment income earned.

Thus an additional $100,000 of investment income earned above the $50,000 threshold will completely eliminate your corporation’s eligible small business deduction.

It can be worthwhile to protect your SBD by reducing your investment income, but it’s important to remember that any changes to your corporation’s financial strategy have to make sense from a financial perspective. You can’t simply make changes to minimize your taxes at the expense of other aspects of your business’s financial health. One approach you can take is shifting from bonds to equity since share sales are only taxed on 50% of the gains while sales of bonds are taxed on the full amount.

As always, this is very much a case where you really need to work with your accountant or other financial planner rather than going it alone.

Assets and Capital Gains

When it comes to managing your assets, it’s always a good idea to time your sales and purchases with regard to the fiscal year. Capital assets often make up a major part of your CCPC’s total value, and that is reflected in your tax burden. Luckily, when you perform an asset transfer can provide a significant benefit for the associated tax liability.

Capital assets are best purchased before the end of your fiscal year, but only if you’re able to make them available for use in the same fiscal year they are purchased. As long as any such asset has been acquired and has been placed into use before the end of the fiscal year, you can reduce your taxable income by claiming up to half the capital cost allowance, or CCA. You also retain the flexibility to claim the full CCA the following year.

When it comes to sales, the first question is whether there are any capital gains involved. If there are, your best option is to delay the sales until just after the new fiscal year begins. The big advantage deferring the sale is that you can also defer any capital gains taxes due until the end of the fiscal year. You also get to claim a full year of CCA as you owned it for the entire fiscal year.

Salaries for Family Members

Many CCPCs are actually family-owned, and this often adds additional wrinkles to your associated tax liabilities. Most such businesses compensate family members through a mix of direct salaries and dividend payouts. While this is very common, the taxation has become more complicated since the expansion of what are known as tax on split income, or TOSI, rules. These rules are designed to restrict business owners’ ability to use the business to transfer income to other family members in order to reduce their overall tax burden.

One result of the new rules is that dividend income paid by private corporations is subject to a high tax rate, reducing the benefits of splitting incomes. This doesn’t mean it isn’t possible to split incomes efficiently, but it does mean that given the complexity of the new rules it’s in your best interest to take the advice of your accountant or other tax professional.

One way to deal with the issue is through hiring family members and paying them as employees. This gives them their own income from the business, which therefore does not count as income splitting. The catch here is that you have to pay family members appropriately, and keep documentation to support that you are paying market rates.


Corporate taxes are not the same as individual taxes, and you don’t want to get caught out paying more than you owe because you didn’t understand the differences. Consulting a tax professional can help you keep control of your finances and structure your income and expenditures to ensure you have no surprises once you hit tax time. Your business is worth too much to go it alone.

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