Find the money you can keep
Canadian companies, holding companies and trusts
Some of these save thousands. Some cost more than they save. Each card shows which.
Open the full Canada page, with real numbers, costs and risks
Canadian tax rates, allowances and thresholds for this year
A structure is a tool, not a trick. If the yearly cost of running it is bigger than the tax it saves, you are worse off. Nobody should set any of these up without a qualified adviser running your real numbers first.
Canadian controlled private corporation
Some admin- Best for
- Profit you can leave in the business rather than spend
- What it saves
- Active profit up to 500,000 is taxed at a small business rate near 12% combined, instead of your personal rate
- What it costs
- A T2 corporate return, bookkeeping and filings, roughly 1,500 to 4,000 a year
- Break even
- Usually worth it once you can leave 40,000 or more a year in the company
How it is set up
- Incorporate federally or provincially and open a separate business account.
- Decide your salary and dividend mix each year, since only salary builds RRSP room and CPP.
- File the T2 within six months of your year end and pay within three.
Watch out: Taking money out as a shareholder loan and leaving it there for more than a year makes it taxable income.
Holding company above the operating company
Serious admin- Best for
- Owners who want to move surplus cash out of a risky trading business
- What it saves
- Dividends can usually move between connected companies without immediate tax
- What it costs
- A second company to file and administer
- Break even
- Worth looking at once the business retains six figures
How it is set up
- Get advice on a section 85 rollover before moving anything.
- Pay dividends up to the holding company and invest there.
- Keep the operating company clean for the lifetime capital gains exemption.
Watch out: Passive investment income inside a company is taxed heavily and can grind away your small business deduction.
Family trust
Serious admin- Best for
- Business families with adult children and growing share value
- What it saves
- Future growth can be shared, and each beneficiary may use part of the lifetime capital gains exemption
- What it costs
- Setup and a T3 return every year
- Break even
- Usually only sensible around a real operating business
How it is set up
- Have a lawyer settle the trust before the shares gain value.
- Make and record distributions each year.
- Watch the 21 year deemed disposition rule.
Watch out: The tax on split income rules stop most attempts to pay dividends to family who do not work in the business.
Rental property held personally
Light admin- Best for
- Long term investors who want simple filing
- What it saves
- Costs and interest come off the rent, and only half of any gain is taxed when you sell
- What it costs
- You carry the risk personally, and net rent is taxed at your full rate
- Break even
- Simplest choice for one or two properties
How it is set up
- File a T776 each year with real figures.
- Think hard before claiming capital cost allowance.
- Keep every improvement receipt, because it lowers your gain later.
Watch out: Buying a new build to flip can make the profit fully taxable business income and trigger GST or HST.
Lifetime capital gains exemption on sale
Some admin- Best for
- Owners selling shares of a qualifying small business
- What it saves
- A large slice of the gain on qualifying shares can be exempt
- What it costs
- Strict tests on the assets and the holding period
- Break even
- Check eligibility at least two years before you sell
How it is set up
- Test whether your shares meet the qualifying small business corporation conditions.
- Clean out non active assets well before a sale.
- Coordinate the sale with any family trust or holding company.
Watch out: The tests look back two years, so a last minute reorganisation usually fails.
Thinking further afield?
Some people ask about a company or an account in another country. Both of these are honest about what is genuinely allowed, and what it costs.