By Pascale Hansen

Canadian business owners work hard for every dollar—so why hand more of it to the CRA than necessary?

The truth is: there are perfectly legitimate, fully compliant, CRA-approved strategies that can dramatically reduce your corporate tax burden when used correctly.

Most business owners only use one or two tools. The sophisticated ones stack multiple strategies together—unlocking lower taxes, higher retained earnings, and more flexibility for wealth building.

Here are the top strategies every incorporated business owner should have in their toolkit.

1. Maximize the Small Business Deduction (SBD)

The SBD reduces the tax rate on the first $500,000 of active business income.
But many business owners unknowingly disqualify themselves because of:

• Too much passive investment income

• Associated corporations

• Certain types of shareholder loans

• Improper corporate structures

A strategic review can help ensure you stay eligible—and keep more profit taxed at the lowest possible rate.

2. Use Income Splitting (Where Allowed)

The Tax on Split Income (TOSI) rules shut down many old-school income splitting tactics, but there are still several legitimate paths, including:

• Paying family members reasonable salaries for bona fide work

• Structuring shares properly under a family trust

• Using capital gains exemptions through a freeze

The key is being compliant and well-documented. Done right, income splitting still meaningfully reduces overall family taxes.

3. Shift Passive Investments Out of the Corporation

When corporate passive income exceeds $50,000, your SBD begins to grind down—raising your tax bill.
Solutions include:

• An Individual Pension Plan (IPP)

• Corporate-owned life insurance (exempt assets)

• Holding companies with proper structuring

• Moving surplus income into personal TFSAs under strategic withdrawal plans

These strategies protect the SBD and keep your effective corporate tax rate low.

4. Leverage Corporate-Owned Life Insurance

One of the most powerful and misunderstood tools.

CRA-approved benefits include:

• Tax-advantaged growth inside the policy

• Cash value accessible for investing or business purposes

• Creditor protection (in many cases)

• The Capital Dividend Account (CDA)—allowing tax-free distribution of death benefits to shareholders

And when paired with strategies like the Immediate Financing Arrangement (IFA), business owners can:

• Create tax-sheltered assets

• Borrow against the policy for liquidity

• Deduct interest when used for income-generating purposes (with proper structure)

This is a cornerstone planning tool for serious entrepreneurs.

5. Create a Retirement Structure for Yourself—Not Just Employees

Business owners often forget that they, too, can set up retirement plans that reduce taxes today while building future wealth.

Top structures include:

✔ Individual Pension Plans (IPP)

Higher contribution limits than RRSPs and tax-deductible to the corporation.

✔ Retirement Compensation Arrangements (RCA)

Ideal for high-income owners looking to defer large amounts of tax.

✔ Enhanced CPP & RRSP Withdrawal Smoothing

Strategic timing can significantly reduce your lifetime tax burden.

These aren’t just retirement tools—they're tax tools.

6. Use a Holdco to Separate Active Business Earnings from Investments

A properly structured holding company allows you to:

• Move excess profits out of your OpCo tax-free via intercorporate dividends

• Protect assets from operational risk

• Invest outside the SBD grind-down zone

• Prepare for future succession, freezes, or sales

Many business owners wait too long to set this up.

7. The Lifetime Capital Gains Exemption (LCGE)

If you plan to sell the shares of your business, the LCGE can shelter up to $1M+ in gains from tax.

To qualify, your business needs to meet strict requirements—including the 90% active business asset test.

Strategies like purification, estate freezes, and family trusts help ensure you qualify when an exit opportunity appears.

This is one of the biggest missed tax opportunities in Canada.

8. Optimized Compensation Mix: Salary vs. Dividends

The blend of salary and dividends affects:

• Corporate tax

• Personal tax

• CPP

• RRSP contribution room

• Mortgage qualification

• Long-term wealth

The “right” strategy is personalized—but optimizing it annually can save thousands.

9. Deductible Business Expenses Many Owners Miss

Some often-forgotten deductions:

• Home office expenses

• Vehicle expenses

• Health & dental plans via a Private Health Services Plan (PHSP)

• Costs of borrowing for eligible investments

• Professional fees

• Life insurance premiums (only in specific collateral loan structures)

Most business owners under-claim or improperly document these. Both cost money.

10. Plan Before You Pay Yourself

Tax efficiency isn’t a year-end exercise. It’s a year-round strategy.

When you integrate:

• Corporate structure

• Compensation planning

• Risk management

• Investment strategy

• Insurance

• Estate and exit planning

…that’s when you unlock the full CRA-approved toolkit.

Final Thought: Your Business is the Engine—Tax Strategy is the Fuel Efficiency

Canadian business owners operate in one of the most complex tax environments in the world. But with the right structures, guidance, and proactive planning, you can legally and confidently reduce your corporate tax bill—often by tens or hundreds of thousands of dollars per year.

Pascale Hansen is the Founder, CEO, and Financial Strategist at Zada.

#CorporateTaxStrategy #CRATaxPlanning #CanadianBusinessOwners