Business Advisory in Vancouver

It turns mostly on whether you can leave profit in the business. A Canadian-controlled private corporation claiming the small business deduction pays a combined 11% on its first $500,000 of active business income in BC — 9% federal plus BC's 2% small business rate, with that $500,000 shared across any associated companies — against 27% on active business income above the limit, while the top combined marginal rate on personal income over $265,545 is 53.5% in BC for 2026, so the advantage applies to money that stays in the company rather than money you draw out to live on. Against that sit the permanent obligations: a T2 return due within six months of every year-end, the tax itself payable two months after year-end — three months for a CCPC that claimed the small business deduction and stayed inside the taxable-income conditions — an annual report to BC Registries within two months of your incorporation anniversary, and a set of corporate books kept separately from your own. The company is also a separate legal person, which is where limited liability comes from, though directors can be assessed personally for payroll source deductions it fails to remit — subject to a due-diligence defence, to the CRA first exhausting its collection remedies against the company, and to a two-year limit once a person ceases to be a director.

For most owner-managers it defers tax rather than eliminating it. The small business deduction brings the rate on the first $500,000 of active business income to 11% in BC against a top combined personal marginal rate of 53.5%, but when that money comes out as a dividend other than an eligible dividend it is grossed up by 15% and carries a federal dividend tax credit of 9/13 of the gross-up plus a separate, smaller BC credit, so the corporate and personal layers are meant to approximate what you would have paid on the income directly — in BC the match is close rather than exact. The deferral is the real benefit, and it is worth most where profit stays invested in the business. It also erodes if the company accumulates investments: the $500,000 limit is reduced once the associated group's adjusted aggregate investment income for the previous year passes $50,000, and is gone by $150,000.

Neither is automatically right: it depends on what you need the money to do. Salary is deductible to the corporation, counts as earned income so it builds RRSP deduction room, and is pensionable — CPP comes off earnings above the $3,500 basic exemption up to the year's maximum pensionable earnings, $74,600 for 2026, with a second tier of contributions on earnings between that ceiling and the year's additional maximum and nothing above it, and the company pays a matching contribution. Dividends come out of after-tax profit, so they are not deductible to the company and they build no RRSP room and no CPP entitlement; they go on a T5 — grossed up 15% with the matching federal and BC credits for dividends other than eligible dividends, or 38% with a larger credit for eligible dividends paid out of income taxed at the general corporate rate — while salary runs through payroll with source deductions and a T4. We model a mix against your personal bracket, your existing RRSP room, what the corporation needs to retain, and whether you want the CPP entitlement.

Not tax-free, but the lifetime capital gains exemption can shelter a substantial gain — a cumulative lifetime limit of $1,275,000 for 2026, reduced by anything you have already claimed and by a cumulative net investment loss or prior business investment losses, and capable of producing alternative minimum tax even where it shelters the gain in full. Within a corporate sale it reaches qualified small business corporation shares only — the exemption separately covers qualified farm or fishing property — and the conditions are specific: at the time of sale the shares must be shares of a small business corporation, meaning 90% or more of its assets by fair market value are used mainly in an active business carried on primarily in Canada or are shares or debt of connected small business corporations; through the 24 months immediately before the sale nobody other than you, a person related to you, or a partnership you were a member of can have owned them, they must have been shares of a Canadian-controlled private corporation over that period, and more than 50% of the company's assets by fair market value must have been so used or invested throughout it. A buyer who wants the assets rather than the shares puts the exemption out of reach, and a company sitting on surplus cash or investments can fail the asset tests outright. Neither is fixable at closing, which is why asset-versus-share and the state of the balance sheet are conversations to have before you have a buyer.

It holds the shares of your operating company, and usually investments alongside them. The mechanism that makes it work is section 112: a corporation can generally deduct dividends received from a taxable Canadian corporation, so profits can usually be moved up out of the operating company without an immediate tax bill — usually, because subsection 55(2) can recharacterize an inter-corporate dividend as a capital gain where it exceeds the payer's safe income and no exception applies. Moving retained earnings off the operating company's balance sheet is one reason owners look at a holdco where they are concerned about its creditor exposure — how much protection a particular transfer actually gives is a question for a lawyer — and it keeps that balance sheet closer to the active-business asset tests the capital gains exemption depends on. Those dividends can still attract refundable Part IV tax, and investment income earned in the holdco counts toward the $50,000 threshold that reduces the operating company's small business deduction, because a holdco that controls the operating company is associated with it and the threshold is tested across the associated group — so a holdco earns its own year-end only when it is doing one of those jobs.

The corporation's filings, the owner's personal filings, and the decisions that sit between the two. That means year-end financial statements and the T2 — due within six months of the corporate year-end — the owner's personal return, payroll and the T4 or T5 slips that go with how you pay yourself, and the planning that connects them: incorporation timing, remuneration, corporate structure, and buying or selling a business. The corporate return and the owner's return are the same decision looked at twice, which is why we would rather prepare both than one in isolation.