A sequence, not a list of tactics.
Most owner tax mistakes are ordering mistakes — the right idea applied in the wrong year, or before the question it answers has been asked.
This playbook sets out eight steps in the order they should be worked through, with the deeper guide linked at each stage. It does not restate the technical detail in the complete tax planning guide or the strategy hub — it tells you what to do first. For the individual high-income view, see the top five strategies for high-income earners.
Reviewed August 2026 by Goald & Co Financial Inc.
Identify the actual tax problem.
Owners routinely buy solutions to problems they do not have. Before anything else, name the problem: too much tax on personal withdrawals, too much tax on corporate investment income, an approaching sale, an estate liability, or simply no idea where the money goes. The answer determines which of the following steps matters.
Two-minute self-check
Not sure which problem you actually have? The Tax Exposure Check asks a short set of structural questions and returns the areas most likely to be costing you money — no figures are submitted to a carrier and nothing is quoted.
Take the Tax Exposure CheckSalary and dividend planning.
Decide compensation deliberately each year rather than by habit. Salary is deductible to the corporation and creates RRSP room and CPP contributions; dividends come from after-tax corporate income and create neither. Paying family members requires services actually performed at a reasonable amount — CRA's income sprinkling guidance and the tax on split income rules apply, and getting this wrong is expensive.
Detail: taking money out of a corporation.
Retained earnings and passive income.
Keep in the corporation only what the business needs plus a deliberate reserve. What is left becomes an investment-income question, and investment income has consequences for the small business deduction.
Under the passive-income business-limit reduction, the applicable prior-period adjusted aggregate investment income (AAII) of associated corporations is used when calculating a CCPC's federal business limit. When the relevant combined AAII exceeds $50,000, the business limit may be reduced, reaching nil at $150,000, subject to the associated-corporation rules and year-end calculations. Investment income is not all treated identically — interest, Canadian dividends, foreign income, rents and capital gains each have their own tax and AAII treatment.
Detail: retained earnings and reducing passive income tax.
Opco / Holdco structure.
Structure follows purpose. A holding company does not automatically reduce tax — its value depends on purpose, structure, the group's passive income, the associated-corporation rules, attribution and TOSI, section 55 on intercorporate dividends, and disciplined implementation. Legitimate reasons include separating surplus from operating risk, holding shares for succession, and preparing for a sale.
Detail: holding companies and family trusts.
Family and estate planning.
Deemed disposition at death can create a tax liability that has no cash attached to it. Estate freezes, trusts and wills determine who bears it. The planning question is not only how much tax, but where the cash to pay it comes from.
Capital dividends may be received tax-free by Canadian-resident shareholders where the corporation has a valid capital dividend account balance and properly files the s.83(2) election before the dividend becomes payable. The CDA is a running tax account, not a bank account, and a mis-timed or excessive election carries penalty tax.
Sale and LCGE planning.
Qualification for the capital gains deduction on qualified small business corporation shares is tested against asset composition over the 24 months before a sale as well as at the time of sale. Purification started during negotiations is usually too late. This is CPA and legal territory, sequenced years ahead.
Capital gains inclusion rate, dated note. The proposed increase to a two-thirds inclusion rate was cancelled according to CRA's current "What's new for corporations" update, so it should not be treated as in force. Planning on this page assumes the one-half inclusion rate that applies under current law. Tax rules change: verify current law with your CPA for the relevant filing date.
Detail: the lifetime capital gains exemption and the sale checklist.
Corporate-owned insurance — last, not first.
Where a genuine need exists — estate liquidity, a buy-sell obligation, key person risk — a corporately owned permanent policy addresses it, and the death benefit in excess of the policy's adjusted cost basis generally credits the capital dividend account. Capital dividend treatment requires a valid CDA balance and a correctly filed s.83(2) election; it is not automatic.
Where the policy is corporately owned, borrowed money that ends up in a shareholder's hands personally is a separate transaction with its own tax consequences. Depending on how it is documented it may be salary, a taxable dividend, a shareholder loan or a shareholder benefit. Where a corporation pledges its policy for a shareholder's personal borrowing, a guarantee fee and formal documentation are usually part of the discussion. None of this is automatic and none of it should be improvised — your CPA and lawyer determine the treatment and the paperwork before anything is drawn.
Detail: corporate-owned life insurance, the CDA, the IRP and infinite banking mechanics.
Illustrated values are not guarantees. Dividends on a participating policy are declared annually at the insurer's discretion and are not guaranteed. Any projection of cash value, death benefit or future borrowing capacity is an illustration built on today's assumptions. Loan interest rates, lender appetite, credit terms and tax law can all change, and actual results will differ.
The annual review checklist.
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Step 1
Compensation
Set salary and dividends deliberately for the year, with your CPA's comparison in hand.
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Step 2
Corporate cash
Size retained cash against operating need plus a stated reserve.
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Step 3
Passive income
Review AAII and RDTOH across the associated group, not one company.
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Step 4
Structure
Confirm the structure still serves the commercial and succession purpose it was built for.
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Step 5
Documents
Keep wills, the shareholder agreement and beneficiary designations current.
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Step 6
Sale readiness
Review LCGE and share conditions if a transaction is plausible within five years.
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Step 7
Insurance
Test coverage against the need, not against a projection.
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Step 8
Current law
Confirm the rules with your CPA for the relevant filing date.
When this may not fit.
Every idea on this page has conditions attached. These are the common situations where the answer is "not yet", "not here", or "not at all".
- The corporation is not yet profitable enough for the compensation question to matter.
- Structure changes are being considered without a commercial or succession purpose.
- Family members would receive shares or salary without services or a defensible basis.
- A sale is already under negotiation and purification has not started.
- Insurance is being proposed before the estate or shareholder need has been quantified.
- The plan assumes a tax proposal that was cancelled or is not yet law.
Frequently asked questions.
By sequencing decisions rather than buying a product: diagnose the actual problem, set compensation deliberately, keep only the corporate cash the business needs, manage passive investment income against the small business limit, structure Opco and Holdco for genuine commercial and succession reasons, plan family and estate liquidity, prepare for a sale years in advance, and use corporate-owned insurance where a real need exists.
No. The proposed increase to a two-thirds inclusion rate was cancelled according to CRA's current "What's new for corporations" update. Plan on the one-half inclusion rate under current law and verify current law with your CPA for the relevant filing date.
Decide it each year with your CPA. Salary is deductible to the corporation and creates RRSP room and CPP contributions; dividends come from after-tax corporate income and create neither. Province, income level and the corporation's tax position all change the answer.
Not by itself. Its value depends on purpose, structure, the group's passive income, associated-corporation rules, attribution and TOSI, section 55 and how well it is implemented and maintained. Where corporations are associated, passive-income consequences generally follow the group rather than disappearing.
Enough for operating needs plus a deliberate reserve for tax, downturn and planned investment. Beyond that, the surplus becomes an investment-income question with consequences for the small business limit, so it should be a decision rather than an accumulation by default.
Years ahead. Qualification for the capital gains deduction on QSBC shares is tested against asset composition over the 24 months preceding the sale as well as at the time of sale, so purification during negotiations is usually too late.
Premiums are generally not deductible. What it does is shelter growth inside an exempt policy and provide a death benefit; the amount in excess of the policy's adjusted cost basis generally credits the capital dividend account, which can allow a capital dividend where a valid CDA balance exists and the s.83(2) election is filed correctly. It is estate and liquidity planning, not a current-tax deduction.
Only for services actually performed, at a reasonable amount, with proper documentation. CRA's income sprinkling guidance and the tax on split income rules restrict dividends and amounts paid to family members who are not sufficiently involved in the business. Confirm any arrangement with your CPA before implementing it.
Footnote
This publication is protected by copyright. Goald & Co Financial Inc. is not engaged in rendering tax or legal advice. This guide contains a general discussion of certain tax and legal developments and should not be construed as tax or legal advice. Should you wish to discuss this or any other Goald & Co guide, please contact info@goald.ca.
Where to go deeper.
These pages carry the technical detail behind the decisions on this page.
Run the sequence with your CPA in the room.
We work alongside your accountant and counsel — mapping the eight steps against your actual structure, and telling you which ones are worth acting on this year.
Review your corporate tax strategyPrimary sources cited in this guide
Each link points to the official CRA publication or statutory provision supporting a factual statement in this guide. Analysis, sequencing and illustrative figures are Goald & Co's own.
- CRA — What's new for corporations (including the cancellation of the proposed two-thirds capital gains inclusion rate increase)
- CRA — T4012 T2 Corporation Income Tax Guide, Chapter 4 (small business deduction, investment income)
- Government of Canada — Passive investment income and the small business deduction rules (AAII $50,000–$150,000)
- CRA T2 Corporation Income Tax Guide — RDTOH and dividend refunds
- CRA — Income sprinkling guidance (tax on split income)
- CRA — How relationships between corporations affect the small business deduction
- Income Tax Act s. 112 — Deduction for taxable dividends received by a corporation
- Income Tax Act s. 55 — Anti-avoidance rule for certain intercorporate dividends
- CRA — Line 25400, Capital gains deduction (qualified small business corporation shares)
- CRA Income Tax Folio S3-F2-C1 — Capital Dividends (capital dividend account and the s.83(2) election)
- CRA Income Tax Folio S3-F1-C1 — Shareholder Loans and Debts
- CRA Income Tax Folio S3-F6-C1 — Interest Deductibility
- CRA — Warning: aggressive tax schemes involving insurance products
Disclaimer. This guide is general educational information published by Goald & Co Financial Inc., an advanced corporate financial and insurance planning firm. It is not tax, legal or accounting advice, and no client relationship is created by reading it. Goald & Co does not prepare tax returns or financial statements; we work alongside your CPA and legal counsel. Outcomes vary by province, income type, corporation type, shareholder facts and changes in law. Verify every figure and every structural step with your own advisors before acting.