Corporate tax planning strategies
Holding company structures
A holding company can allow surplus funds to be moved out of an operating company through intercorporate dividends, subject to the applicable tax rules.
This may help separate accumulated investments from the day-to-day risks of the operating business. It can also create more flexibility for future investments, business sales, or succession planning.
A holding company is not appropriate in every situation. We review the expected benefits, added compliance costs, and possible tax consequences before recommending one.
Lifetime Capital Gains Exemption planning
Shares of a qualifying small business corporation may be eligible for the Lifetime Capital Gains Exemption when they are sold.
Eligibility depends on several tests, including how the corporation's assets have been used before the sale. Excess cash, investments, or other non-active assets can affect whether the shares qualify.
We help business owners review these requirements in advance and identify steps that may improve the corporation's position before a future sale.
Owner compensation planning
Salary and dividends can have different effects on personal tax, corporate tax, CPP, RRSP contribution room, and cash flow.
We review the available options based on your income needs, other sources of income, and longer-term goals. There is no single answer that works for every owner or every year.
Retaining and investing corporate funds
Leaving funds inside a corporation can provide tax deferral, but passive investment income can affect access to the small business deduction and create additional tax considerations.
We help business owners assess how much to retain, how funds may be invested, and when it may make sense to withdraw money personally.
Planning around SR&ED tax credits
SR&ED claims can affect taxable income, corporate tax balances, refundable credits, and cash flow.
For businesses that qualify, we coordinate the SR&ED claim with the corporate tax return so the financial and tax treatment is considered together.
When tax planning is most useful
Corporate tax planning is often most useful when:
- Profits are increasing
- The corporation is accumulating excess cash
- The owner is reconsidering salary and dividends
- A holding company is being considered
- The business may be sold in the future
- Family members may become shareholders
- A shareholder is moving to or from Canada
- The corporation is investing in research and development
- A major purchase, reorganization, or succession is being planned
The earlier these issues are reviewed, the more options may be available.
How we approach corporate tax planning
1. Understand the current structure
We review the corporation, its shareholders, related companies, and how funds currently move between the business and the owner.
2. Identify the decision to be made
Tax planning should address a specific issue, such as compensation, retained earnings, a future sale, or a corporate reorganization.
3. Compare the available options
We consider the tax consequences, compliance costs, legal requirements, and practical effect of each option.
4. Coordinate implementation
Where legal documents or valuation work are required, we coordinate with the appropriate advisers and handle the related accounting and tax filings.
Tax planning should happen before year-end
Once a transaction has occurred or the fiscal year has ended, some planning opportunities may no longer be available.
Reviewing compensation, instalments, major purchases, shareholder balances, and corporate structure before year-end gives you more time to make informed decisions.
Some of the most important tax decisions must be made before year-end. Reviewing your options early gives you more time to act.
