Using a corporation to minimize taxes
If you’re a business owner, incorporated professional, or entrepreneur, your corporation can be more than just a vehicle for income — it can be a powerful tool for building and protecting wealth. With the right strategy, you may be able to defer taxes, split income, and invest retained earnings in a way that supports both your business and personal financial goals.
The key areas of tax planning through a corporation include:
Income splitting through private corporations
Taxation of investment income in a corporation
Tax planning checklist for the owner-manager
When income is earned inside a corporation, it’s generally taxed at a lower small business tax rate, allowing you to leave more funds inside the company to reinvest or grow. By not withdrawing all income personally each year, you can defer personal taxes and create more long-term planning flexibility.
There are multiple ways to pay yourself from a corporation — salary, dividends, or a combination of both. The right mix depends on your income needs, contribution room to RRSPs or CPP, and how you want to qualify for future programs like the Canada Child Benefit or Old Age Security. Strategic planning can reduce your overall tax rate while still funding your retirement.
In some cases, setting up a holding company to receive dividends or manage investments can provide additional creditor protection and tax planning opportunities — especially when selling a business or managing passive income. This structure may also support intergenerational wealth transfer or estate equalization.
Eligible business owners may also benefit from the Lifetime Capital Gains Exemption (LCGE) on the sale of qualifying small business shares — currently over $1 million per person. This can be a significant tax shield if you plan to sell or transition your business.
And for those with family members involved in the business, income splitting through reasonable salaries or dividends (where permitted under tax rules) may help reduce the family’s overall tax burden. Using corporate-owned life insurance or implementing an estate freeze can further enhance long-term planning for succession and legacy.
Please visit our section on Corporations for more information to comfortably tax plan through a corporation.
If you’re incorporated or thinking about it, we can help you design a strategy not just for today’s income, but for long-term tax efficiency, retirement planning, and wealth transfer.
