Catchfire does not offer tax planning—but as strategic executive coaches who offer M&A advisory services, we know how important tax planning is for business owners. We created this guide to tax planning to give you a deeper understanding of tax planning strategies—mostly to encourage you to work with a tax advisor. 

Key Takeaways

  • Tax planning is complex. Get a tax advisor.
  • Incorporating can reduce your tax burden, but it adds complexity and costs.
  • The capital gains tax is not increasing to ⅔ for gains over $250,000.
  • Sole proprietorships and general partnerships file personal income tax for corporate earnings.
  • Hiring family members can lower your tax liability—but only if you do it right.
  • Capital cost allowance (CCA), deductions, and credits can all help reduce your tax burden.
  • TFSA and RRSP contributions can reduce your tax burden, but some individuals may be better off investing in corporate accounts.

Tax Planning And Preparation

Tax planning and tax preparation are two related but distinct concepts: 

 

  • Tax planning is a continuous effort undertaken by business owners to lower their tax burden.
  • Tax preparation is the process of organizing and filling out your tax return.

 

This article addresses tax planning—it’s good to remember that proper tax planning can make tax preparation much easier. 

What Is Tax Planning? 

Tax planning can benefit anyone, but the process is particularly important for business owners. Here’s why:

 

  • You must plan for both business and personal income taxes.
  • You should plan years in advance—even planning for the eventual sale of your business.
  • There is a wealth of tax credits and benefits you may be able to claim through your business.
  • You are more likely to incur capital gains and losses (both for your business and your personal income).

 

This is not an exhaustive list—but it makes it clear why tax planning is especially important for business owners. 

Business Taxes Vs. Personal Taxes

Business taxes and personal taxes can vary significantly depending on the structure of your business. In a sole proprietorship or general partnership, you pay personal income tax on the company’s earnings; conversely, corporations pay corporate taxes.

 

That’s just the start—businesses may also need to pay taxes on goods and services they sell in Canada, including GST, PST, and/or HST. When you start selling internationally, taxes in the jurisdictions you sell to, tariffs, and other taxes may apply.

 

You can (and should) plan for all of these taxes. Hiring accountants and other tax professionals can save you money, work, and legal trouble. 

Capital Gains And Inclusion Rate Changes

In the spring of 2024, the federal government proposed sweeping changes to capital gains taxes. The biggest change was a proposed increase in the capital gains inclusion rate from ½ to ⅔ on capital gains realized in excess of $250,000 annually.

 

In 2025, this proposed change to the capital gains tax was cancelled. 

 

The changes and their subsequent cancellation make for an interesting case study on the importance—and the precarity—of tax planning. There are undoubtedly business owners who opted to make efforts to sell their businesses before the changes took place in an effort to avoid the increase in taxes.

 

Many of these business owners may have succeeded in their efforts—and those who did not are undoubtedly relieved by the reduction in capital gains tax. When tax planning, you must be aware of political and economic changes that could affect taxation. There is risk in tax planning—just as there is risk in each and every business endeavour. 

 

When you expect to incur capital gains, you should also look into the lifetime capital gains exemption (LCGE), which may exempt you from paying some or all capital gains. Read the Government of Canada’s page on the lifetime capital gains exemption to learn more. 

Filing Taxes For An Unincorporated Business

Incorporation is one of the most effective tax-saving strategies for businesses producing more profits than their owners need to live on.

 

Unincorporated businesses (sole proprietorships and general partnerships) pay income tax on their business earnings before taxes (EBT). Personal income tax rates are higher than corporate income tax rates. Federally, small businesses may pay as little as a 9% tax rate; the basic corporate tax rate is 38%.

 

Personal income tax rates can be much higher than corporate tax rates; the federal tax bracket for personal income ranges from 15% to 33%. 

 

A tax advisor can help you understand the tax advantages of incorporating. Incorporation is not without its downsides; corporations are more complex and cost more to maintain. Part of the tax planning process is determining whether or not these additional costs and complexities are offset by the tax advantages. 

Tips And Strategies For Business Tax Planning

Plan Around Depreciable Asset Purchases

Capital cost allowance (CCA) is a deduction in the Canadian income tax code that allows you to claim a portion of the cost of depreciable assets used by your business.

 

Timing the purchase and use of depreciable assets can help you take full advantage of the CCA. There are several assets that enhance the first-year CCA, including:

 

 

CCA rules are complex; to determine when you should purchase depreciable assets, when you should start using the assets you purchase, and the rate at which the assets are depreciable, you should speak to a tax advisor. 

Take Advantage Of Small Business Deductions And Credits

Small and medium-sized business owners can take advantage of a number of different tax deductions. These deductions include:

 

  • Home office deductions
    • Rent
    • Mortgage interest
    • Property taxes
    • Utility bills
    • Home insurance
  • Advertising fees
  • Business supplies
  • Shipping costs
  • Delivery costs
  • The cost of independent contractors and freelancers
  • Marketing fees
  • Utilities
    • Heat
    • Electricity
    • Insurance
    • Maintenance
  • Professional fees
  • Motor vehicle expenses
    • Fuel
    • Insurance
    • Maintenance and repairs

 

Tax deductions lower the taxable income of your business. Tax credits, on the other hand, directly reduce the taxes you owe to the government. Tax credits are typically targeted to industries; we recommend reading through this list of federal tax credits. Note that the list was published in 2024 and is not comprehensive.  

Consider Investing In Clean Technologies

The Government of Canada is incentivizing businesses to invest in clean technologies by offering investment tax credits (ITCs). These credits can help you invest in clean energy, purchase green vehicles, and more. There are four major green ITCs available:

 

 

There are also tax incentives for manufacturers involved in producing zero-emission technologies. 

Employ Family Members

Employing family members can come with significant tax advantages—though those tax advantages can disappear if they are not properly understood. We highly recommend talking to a tax advisor to see what mix of dividends and income you should pay out to family members you employ. Here are some things to consider:

 

  • Income splitting is incredibly complex, and very high tax rates can be applied to certain types of income (like dividends).
  • Terms of income splitting (TOSI) rules may not apply to wages paid for real work—but the work performed must be commensurate with the salary. 
  • Salaries are business expenses—even when paid to family members. This can reduce the taxable income of your business.

There are also benefits to your family—from increased RRSP contribution limits to larger CPP contributions. 

Contribute To A TFSA

A tax-free savings account (TFSA) allows you to earn tax-free investment income. You accumulate TFSA contribution room every year; the accounts have been available since 2008. As such, a Canadian who has been 18 years old since 2009 would have a maximum contribution limit of $102,000 in 2025.

 

Corporations cannot open TFSAs, but they can still be used by the owners of corporations—or any structure of business—to protect investment income from taxation. 

 

The ability to contribute to a TFSA does not, however, always mean it is prudent to contribute to a TFSA. CIBC recently released a detailed study on whether business owners should invest in RRSPs, TFSAs, or in their own corporations. The answer is complex; we highly recommend reading the study.

 

This study only applies if you are incorporated; unincorporated business owners should almost always contribute investments into their TFSAs (especially once their RRSPs are maxed out).

 

Max Out Your RRSP Contributions

Much like TFSAs, a registered retirement savings plan (RRSP) offers business owners a tax-free vehicle for investments. These have different advantages (and disadvantages). 

 

Practical wisdom says that you should max out your RRSP contributions before your TFSA, but we never recommend relying on practical wisdom; talk to a tax advisor instead.

 

We recommend reviewing the CIBC study linked above if you are incorporated, to get a better understanding of which type of investment is best for you.  

Incorporate Your Business

As we have discussed, incorporating your business can come with numerous tax advantages. These tax advantages can be tremendous—but running a corporation is both costly and complex. Speaking with a tax advisor, along with a strategic advisor, is the best way to understand whether incorporating is right for you.

Conclusion

Tax planning is complex; it is also an essential part of owning a business. The best way to succeed is by working with a tax advisor.

 

At Catchfire, we do not offer tax planning services—but our strategic executive coaching services can help you plan the other aspects of your business. Speak with one of our experts today!