How investment income inside an Ontario private corporation is generally taxed, and what we can and can't help with.
Generally, it is taxed at a high corporate rate when earned, and part of that tax comes back when the corporation pays taxable dividends. For an Ontario Canadian-controlled private corporation (CCPC), interest and similar income is taxed at about 50.17%, compared with 11.2% on active business income within the small business limit as of July 1, 2026.
The corporation often has more to invest because personal tax hasn't been paid yet, but those investments don't get the small business rate.
LG Financial offers segregated fund contracts and annuities, and we work alongside your existing investment advisor or portfolio manager, who stays in place.
The general treatment for an Ontario CCPC in 2026, before personal tax on dividends. Connected corporations follow different rules. Your accountant confirms how this applies to you.
| Income type | Tax in the corporation | Refundable when taxable dividends are paid | Counts toward the $50,000 test? |
|---|---|---|---|
| Interest | All of it, at about 50.17% | 30 2/3% of the income | Yes, in full |
| Foreign interest and portfolio dividends | All of it, at about 50.17%, generally less a credit for foreign tax | Up to 30 2/3% of the income; foreign tax credits can reduce it | Yes, in full |
| Eligible dividends from Canadian corporations | Deducted from taxable income, then Part IV tax of 38 1/3% | The Part IV tax, through the eligible pool | Yes, unless connected |
| Non-eligible dividends from Canadian corporations | The same, with Part IV tax of 38 1/3% | The Part IV tax, through the non-eligible pool | Yes, unless connected |
| Capital gains | Half of a realized gain, at about 50.17%, or about 25.1% of the whole gain | 30 2/3% of the taxable half; the other half goes to the Capital Dividend Account | The taxable half, once realized, excluding active business assets |
Part of the tax on investment income goes into a notional pool, and the corporation gets it back when it pays taxable dividends, generally at $38.33 for each $100 of dividends. No dividend, no refund.
Part IV tax on eligible dividends goes into the eligible pool (ERDTOH). Refundable tax on interest, foreign income and capital gains, and Part IV tax on other dividends, goes into the non-eligible pool (NERDTOH).
Eligible dividends paid out draw only on the eligible pool. Non-eligible dividends draw on the non-eligible pool first.
The CDA tracks tax-free amounts that a private corporation can pay to Canadian-resident shareholders as capital dividends. For investors, the main addition is the non-taxable half of capital gains, less the non-allowable half of capital losses.
Paying one takes a Form T2054 election, filed by the earlier of the day the dividend becomes payable and the first day it is paid. Later capital losses can reduce the balance. See our Capital Dividend Account guide.
If a corporation and its associated corporations earn more than $50,000 of passive income in a year, the federal small business limit for the next year shrinks by $5 for each $1 above $50,000. It reaches zero at $150,000.
Ontario doesn't follow this reduction. Income that loses the federal limit is generally taxed at 17.2% instead of 11.2%, using rates from July 1, 2026.
Unrealized gains, gains on active business assets, dividends from connected corporations and, under current rules, growth inside an exempt life insurance policy don't count. Associated corporations are combined, so a holding company's portfolio counts against its operating company. See the $50,000 passive income rule for an example.
Your accountant leads the tax side. We explain the rules, model options for them to review, and handle the pieces we offer. We don't recommend or manage stocks, ETFs, mutual funds, bonds, GICs or portfolios.
We offer these from Canadian insurance companies. Depending on the contract, 75% to 100% of deposits are protected at death or at maturity, typically at least 10 years out, and fees are higher than for mutual funds. An annuity pays a set income for life or a fixed term, and the money generally can't be withdrawn once purchased. A corporation that owns a segregated fund contract is still generally taxed on the income and gains allocated to it.
This starts with an insurance need, such as tax at death or a buy-sell agreement. If the need is real, corporate-owned life insurance may fit. Under current rules, growth inside an exempt policy is generally not taxed each year. Premiums are generally not deductible, early cash values are low, and surrendering can create a taxable gain.
An Individual Pension Plan moves money from the corporation into a pension for owners on a steady salary, with contributions generally deductible. It brings actuarial costs, funding obligations and locked-in money. Higher-income owners may also look at a Retirement Compensation Arrangement.
A registered investment advisor does that work.
These structures may add cost without solving a problem.
It depends on your income, tax rates and timing. Inside the corporation you generally have more to invest, but investment income is taxed heavily until dividends are paid. Personally, you pay tax first but can use RRSP and TFSA room. Your accountant can compare the two.
About 50.17% on interest, foreign income and the taxable half of capital gains, with up to 30 2/3% of that income refundable when taxable dividends are paid. Dividends from unconnected Canadian corporations generally face a refundable 38 1/3% Part IV tax instead.
No. A gain counts only when it is realized, and only the taxable half counts.
No. We offer segregated fund contracts and annuities, and we work alongside your existing investment advisor, who stays in place.
Under current rules, growth inside an exempt policy is generally not counted as passive income, but a gain on surrender can count. It should start with a real insurance need, not as a replacement for investing.
This information is general in nature and is not tax, legal, accounting, insurance or investment advice, and it does not recommend any investment. It is based on current Canadian tax legislation, which can change. Any strategy should be designed and reviewed with your accountant and legal advisors based on your circumstances. Rates are approximate, reflect 2026 federal and Ontario rules and exclude personal tax. Segregated fund values can rise or fall.
A short call will show which questions are worth raising with your accountant.
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