Consulting & Advisory

A Section 85 rollover lets you transfer property into a corporation without triggering a capital gain at the time of transfer. You and the corporation elect a transfer price within an allowable range, deferring the tax. It is most commonly used when someone is incorporating an existing business or restructuring corporate ownership and wants to avoid an immediate and unnecessary tax bill. It can also be used to transfer assets between related corporations in certain restructuring scenarios. The rollover requires a specific election filed with the CRA and must be done correctly to be effective.

An estate freeze locks in the current value of your corporation and transfers all future growth to the next generation or a family trust. It is most relevant for business owners whose company has significant value today and is expected to keep growing. The freeze caps the capital gains that are taxable to you or your estate and starts the clock on future appreciation belonging to your successors. Timing matters and earlier is generally better, since the goal is to freeze the value before further growth occurs. The mechanics typically involve exchanging common shares for fixed-value preferred shares and issuing new common shares to the next generation or a family trust.

The LCGE allows Canadian residents to shelter over $1M in capital gains when selling shares of an eligible corporation, with the amount indexed to inflation annually. To qualify, the corporation must be a Canadian-controlled private corporation, at least 90% of its assets must be used in an active business at the time of sale, and the shares must have been owned for at least 24 months with certain asset tests met throughout that period. For business owners planning an eventual sale, these conditions need to be in place and maintained well in advance. They cannot be fixed after a deal is on the table, which is why planning early is what determines whether the exemption is available when you need it. Family trusts can also be used to multiply the exemption across multiple beneficiaries on a qualifying sale.

A holding company makes sense once your operating company is consistently generating more retained earnings than you need personally. Rather than paying that surplus out at over 50% personal tax, you can transfer it to a holding company as a tax-free intercompany transfer, invest it inside the holding company, and draw it down on your own timeline. The holding company also separates your investment assets from business liability, can help manage the passive income grind-down on your small business deduction, and simplifies estate planning. For most business owners who are consistently profitable and not spending everything they earn, a holding company structure pays for itself within a few years.

A family trust is a legal arrangement where a trustee holds assets on behalf of beneficiaries, typically family members. In a corporate context, a discretionary family trust is often set up as a shareholder of the corporation, allowing income and capital gains to be allocated to beneficiaries. This can significantly reduce the total family tax bill. Family trusts are also used to multiply the Lifetime Capital Gains Exemption on a qualifying business sale, allowing each beneficiary to claim their own Lifetime Capital Gains Exemption. The setup and ongoing administration has real compliance requirements, so the planning benefit needs to justify the cost.

The core advantage is the gap between corporate and personal tax rates. As an unincorporated physician or dentist taking all income personally, you pay over 50% at the top marginal rate on income above a certain threshold. When that same income flows through a medical or dental professional corporation, it is first taxed at the small business rate on the first $500,000 of active income. The money that stays inside the corporation after paying yourself a salary or dividend is taxed at that much lower rate. Over a career, this deferral creates a significant pool of capital inside the corporation that can be invested, transferred to a holding company, or drawn down in retirement at a lower personal rate. Incorporation does not eliminate tax. It gives you control over when and how you pay it.

The most important factor in a tax-efficient business sale is preparation, not the deal itself. The two biggest tools available to Canadian business owners are the Lifetime Capital Gains Exemption, which allows you to shelter over $1M in capital gains on the sale of qualifying shares, and the choice between a share sale and an asset sale, each of which has very different tax consequences for the buyer and seller. A share sale is generally more tax-efficient for the seller since it preserves access to the LCGE. An asset sale is often preferred by buyers since they get control over which assets they're purchasing. The right structure depends on your situation, your buyer, and whether the LCGE conditions have been met. These conditions cannot be fixed after a deal is on the table, which is why planning ahead of a potential sale is what determines how much of the proceeds you actually keep.

Retirement planning for incorporated professionals and business owners in Canada is different from retirement planning for employees. You do not have a pension or group RRSP. What you have is a corporation with retained earnings, potentially a holding company, an RRSP built from salary income, and a business that may or may not have sale value. The planning starts years before you stop working. Key decisions include how to draw down retained earnings tax-efficiently over retirement, whether to wind down the corporation or continue it as a holding vehicle, whether the shares qualify for the Lifetime Capital Gains Exemption on a sale, and how to coordinate dividend income, RRSP withdrawals, and CPP to minimize combined tax in retirement. The later you start these conversations, the fewer options you have.

The Scientific Research and Experimental Development (SR&ED) program is a federal tax incentive that allows Canadian businesses to claim tax credits and deductions for eligible research and development activities. Qualifying work includes experimental development aimed at achieving a technological advancement or eliminating a technological uncertainty, basic research, and applied research. Many technology companies, software developers, manufacturers, and even professional services firms undertake work that qualifies without realizing it. The SR&ED claim requires detailed technical and financial documentation. If you believe your business may be conducting qualifying work, a preliminary review is worth doing.