The legitimate ways an Ontario corporation and its owner can lower, defer or reshape tax in 2026, in plain language.
Most corporate tax savings for an Ontario owner come from six places: the small business rate, timing, how you pay yourself, where surplus sits, credits, and planning the sale of your shares. Each is a rule in the Income Tax Act, and your accountant decides which fit.
How $100 of income is taxed in Ontario
Combined federal and Ontario rates, 2026
Pick the one that matches your question, or read them in order.
Keep active business income at 11.2% instead of 26.5%.
Protecting the rateBring deductions forward with equipment purchases and a year-end bonus.
Year-end movesBalance salary and dividends, and pay family only for real work.
The pay mixChoose between investing, a holding company, a pension or insurance.
Where surplus can sitRecover part of research and co-op hiring costs.
Federal and Ontario creditsKeep shares eligible for the exemption and plan for tax at death.
Exit planningThe gap between 11.2% and 26.5% is the biggest saving most owners already have. Protecting it comes first.
A Canadian-controlled private corporation pays 11.2% on its first $500,000 of active business income each year. It was 12.2% before July 1, 2026, and a tax year that straddles that date is pro-rated.
Ask your accountant: are we claiming the full deduction, and could a change in ownership put it at risk?
Federally, every $1 of investment income over $50,000 cuts the $500,000 limit by $5, so it is gone at $150,000. Ontario does not follow this rule, so the affected income rises from 11.2% to 17.2%, not to the full 26.5%.
Ask your accountant: how close are we to $50,000, and would a pension or insurance change that?
The $50,000 passive income ruleCorporations controlled by the same person are generally associated and share one $500,000 limit. Opening a second company does not usually create a second one.
Ask your accountant: how is the limit shared across our companies this year?
How passive income shrinks the federal limit
Timing rarely erases tax, but deferring it keeps money working in the business for longer. Here is how a typical year-end plays out.
Capital cost allowance (CCA) is the tax version of depreciation. It starts once an asset is available for use.
Ask your accountant: which planned purchases should happen before our year-end?
The corporation deducts the bonus this year, and you are taxed in the year it is paid, which must be within 180 days. Payroll deductions apply when you pay it, and salary or bonus creates RRSP room that dividends don't.
Reasonable costs of earning business income are generally deductible, from rent and wages to professional fees. Personal costs run through the company are not, and they invite reassessment. Keep records for six years from the end of the tax year they relate to.
This is where corporate and personal tax meet, so it is worth a fresh look every year.
A reasonable salary for work a spouse or adult child actually does is deductible and taxed at their rate. Dividends to family are taxed at the top rate under the tax on split income (TOSI), unless an exclusion applies, for example:
Ask your accountant: does an exclusion apply before we pay family dividends?
A loan from your corporation, including a shareholder account in a debit balance, is generally taxed as your income unless it is repaid within one year after the end of the corporation's tax year in which it was made. Repaying and re-borrowing in a series doesn't count.
Ask your accountant: where does my shareholder account stand before year-end?
The capital dividend account can be paid out tax-free to Canadian-resident shareholders. It builds from the non-taxable half of capital gains and from life insurance proceeds above the policy's adjusted cost base. Your accountant files the election.
Once the business earns more than you need personally, the question becomes where the surplus should sit. Each option has costs and conditions, and several only make sense past a certain size.
Receives dividends from your operating company, generally without regular income tax on the way up, which moves surplus away from business creditors. It does not lower tax on investment income by itself.
Investment income is taxed at about 50.17%, but 30 2/3% of it is refunded as the corporation pays taxable dividends. Capital gains are only half taxable. Interest is fully taxable.
A corporate-funded pension with deductible contributions that can exceed RRSP room from about age 40. It needs T4 salary and has actuarial costs. Budget 2026 proposed rule changes for 2027 and 2028, which are not law yet.
If you need permanent coverage anyway, owning it in the corporation uses corporate dollars. Growth in an exempt policy isn't taxed each year, and at death the proceeds above the policy's adjusted cost base go to the capital dividend account. The insurance need comes first.
Premiums for employee health and dental coverage, and claims through a qualifying health spending account, are generally deductible and generally not a taxable benefit to employees. Plans that cover only the owner and family face stricter rules.
When you and the corporation both need the same coverage, one policy can be split between you under a written agreement, each paying for and owning its own part. The split has to be fair, or the difference can be a taxable benefit to you.
A corporation can own critical illness coverage on an owner or key person to keep the business running through a serious illness, or to fund a buyout. Who owns and pays decides the tax.
An Immediate Financing Arrangement or a Corporate Insured Retirement Program borrows against a permanent policy. Both add interest, lender conditions and collateral risk, so they suit only strong, stable cash flow and a lasting insurance need.
Credits return part of what you spend. Many businesses that do qualifying work never claim.
For a Canadian-controlled private corporation, on up to $6 million a year of qualifying research and development spending. It can be fully refundable on current spending, and the limit phases out between $15 million and $75 million of taxable capital.
Refundable, on up to $3 million of Ontario research spending. It phases out as a corporation's taxable income and capital grow.
Up to $3,000 per co-op work placement, refunding 25% to 30% of eligible costs depending on payroll size.
Work has to meet the program's definition of research or experimental development, so many owners use a claim specialist and keep project records as the work happens.
The biggest single tax decision for many owners happens once, at the end. The rules reward planning that starts years before.
Up to $1,275,000 of gain on qualified small business corporation shares can be sheltered in 2026. The shares must pass three tests:
Surplus cash and investments can break these tests. Budget 2026 also proposed a separate $15 million exemption for some new shares, which is not law.
At death, your shares are generally treated as sold at fair market value, and the value can be taxed again when the corporation pays it out to your estate.
Your lawyer and accountant lead this work.
What each one does, who it usually suits, and who leads it.
| Strategy | What it does | Usually suits | Who leads |
|---|---|---|---|
| Small business deduction | Lowers the rate | Every CCPC with active business income | Accountant |
| Managing passive income | Protects the lower rate | Corporations with growing investments | Accountant |
| Timing capital purchases | Defers tax | Businesses buying equipment or vehicles | Accountant |
| Year-end bonus accrual | Defers tax, creates RRSP room | Owners near the small business limit | Accountant |
| Salary and dividend mix | Balances corporate and personal tax | Every owner who draws income | Accountant |
| Capital dividends | Pays out a tax-free balance | Corporations with a CDA balance | Accountant |
| Holding company | Protects surplus, adds flexibility | Owners with surplus to keep | Accountant and lawyer |
| Individual Pension Plan | Deductible retirement saving | Owners about 40 and over with T4 salary | Actuary, accountant, us |
| Corporate-owned life insurance | Meets an insurance need with corporate dollars | Owners with a permanent insurance need | Us, with your accountant |
| Split-dollar or shared ownership | Shares one policy's cost and benefits | Owners and corporations with a shared need | Us, your accountant and lawyer |
| Corporate critical illness | Protects the business through an illness | Owner-run businesses and partners | Us, with your accountant |
| Group benefits and HSA | Deductible health costs | Employers, and some owners | Us, with your accountant |
| SR&ED and Ontario credits | Recovers part of qualifying costs | Businesses that qualify | Accountant or claim specialist |
| Capital gains exemption | Shelters gain on a sale | Owners planning to sell shares | Accountant and lawyer |
| Estate freeze and insurance | Caps and funds tax at death | Owners passing on a business | Lawyer, accountant, us |
LG Financial Group is a Burlington insurance agency. We don't prepare tax returns or give tax opinions. Good planning uses three advisors, each in their own lane.
Leads the tax side: returns, the salary and dividend mix, elections and credits.
Documents holding companies, reorganizations, estate freezes and buy-sell agreements.
Designs and places the pension, insurance and benefits pieces, and coordinates them with both.
Accountants can read how we work alongside you.
There is no single answer, because it depends on your income, your plans and your structure. For most Ontario owners the largest items are keeping active business income eligible for the 11.2% small business rate, timing deductions such as capital cost allowance and year-end bonuses, choosing the mix of salary and dividends, and deciding where surplus should sit. Your accountant confirms which of these apply to you.
Each province adds its own rate to the federal 9% small business rate and 15% general rate, so the starting point differs by province. The main levers are the same everywhere: claim the small business deduction, watch passive income against the $50,000 federal threshold, claim capital cost allowance and credits such as SR&ED, and plan how income is paid out to you. In Ontario the combined small business rate is 11.2% from July 1, 2026.
For private company owners it usually means a test for the lifetime capital gains exemption. When you sell shares, all or substantially all of the corporation's assets must be used mainly in an active business in Canada, which the CRA reads as 90% or more by fair market value. The same 90% figure appears in other tax rules too, such as one of the tax on split income exclusions, so check which rule is meant.
Yes. Choosing among the options the Income Tax Act provides, such as when to buy equipment or how to pay yourself, is legal tax planning. The general anti-avoidance rule lets the CRA deny a tax benefit from transactions that misuse or abuse the Act, and hiding income or claiming personal expenses is evasion. Every strategy on this page is a recognized rule, applied with your accountant.
Yes. They depend on your financial statements, your corporate structure and your returns, which your accountant prepares. We work alongside your accountant on the pension, insurance and benefits pieces, and we are happy to meet with them.
This information is general in nature and should not be considered tax, legal, accounting, insurance, or investment advice. Strategies should be reviewed with qualified tax, legal, accounting, and financial professionals based on your individual circumstances.
A short conversation is the easiest way to see whether these structures are worth exploring for your corporation.
Prefer to talk? Call 289.339.8100
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