Economical Corporate Tax Planning for Canadian Businesses

Canada taxes income in graduated brackets, so only the income above a threshold is taxed at that bracket's higher rate and moving up a bracket never reprices the income below it. There is one federal set of brackets and a separate set for each province and territory, and the thresholds are indexed to inflation every year. Look up the current figures for your province on the CRA rate tables rather than relying on an older list.

Salary or dividends, or a blend of both. A salary is deductible to the corporation, is reported on a T4, creates RRSP room, and needs a payroll account with CPP at 5.95% from each side for 2026. A dividend needs no payroll account but gives the company no deduction, and builds no CPP or RRSP room. Taking cash without recording either creates a shareholder loan that becomes taxable in your hands if it stays outstanding too long.

File T5 slips and the related summary electronically through the CRA's internet file transfer or web forms service, reached from My Business Account, and give each recipient a copy of their own slip. The filing is due by the end of February for the previous calendar year. Web forms suits a handful of slips; internet file transfer suits an XML file exported from accounting software. Late slips draw a penalty that scales with slip count and lateness.

The simplest route is your bank’s online bill payment, choosing the CRA payee that matches the tax type and year. The CRA’s My Payment service takes Interac Online and Visa Debit, and you can set up a pre-authorized debit inside My Account. Third-party card processors work but charge a fee. Select the correct account and period so the money is not applied elsewhere, and pay by the deadline, since interest runs from the day after.

Start with the structure. An unincorporated business reports on form T2125 inside your personal T1, due 15 June 2026 for the 2025 year, with any balance still payable by 30 April 2026. A corporation files a T2, due six months after its fiscal year end. Either way, reconcile your bookkeeping first, separate business from personal spending, keep records for six years, and claim capital purchases through depreciation rather than as an outright expense.

Exemptions is American wording. Canada uses non-refundable credits instead, starting with the basic personal amount, which is $16,452 federally for 2026 and reduced at high incomes, plus credits for age, disability, tuition, dependants and more. You list the ones that apply on the personal tax credits return you give your employer, which lowers the tax withheld each pay. The same credits then reduce the tax calculated on your return.

The credit is paid quarterly, in January, April, July and October, on the same schedule everywhere in Canada including Ontario. A small annual entitlement may be paid as one lump sum instead of in quarters. Payments depend on the previous year's return being filed and assessed, so a late return delays them. Check your dates and amounts in CRA My Account, and keep your direct deposit details up to date.

Only for specific purposes. Fees paid to collect or establish a right to salary, wages, a pension, severance or support amounts, and fees to object to or appeal a CRA assessment, are claimed in the deductions section of the T1, on the line the CRA's guide names. Legal costs of earning business or rental income belong on the T2125 or the rental statement. Fees to acquire property are usually added to its cost instead of deducted.

Canada has no personal exemption in the American sense. The equivalent is the basic personal amount, a non-refundable credit every resident can claim, which cancels federal tax on a first slice of income, and each province has its own version at a different level. The federal amount is indexed annually and is reduced for taxpayers in the top bracket. It is applied automatically when you file, so there is nothing to elect or apply for.

Wages paid to a nanny or babysitter can be claimed as child care expenses where the care let you work, carry on a business or study. Receipts must show the caregiver's name and, for an individual caregiver, a social insurance number. Hiring a nanny in your home usually makes you an employer, so you need a payroll account, source deductions and a T4 at year end. Payments to a close relative who is still a minor do not qualify.

File the return. Refunds, the GST/HST credit, the Canada child benefit and most provincial credits are all paid out of an assessed return, and they stop when a year goes unfiled. Add direct deposit so the money lands in your account instead of arriving as a cheque. For the 2025 tax year a refund on an electronically filed return generally takes about two weeks.

British Columbia charges its own corporate rate on top of the federal rate, so the figure that matters is the federal rate plus the provincial rate for your year end. For 2026 the federal side is 9% on the first $500,000 of active business income for a qualifying Canadian-controlled private corporation and 15% on general income. Confirm the current British Columbia small business and general rates on the CRA and provincial rate tables before relying on a combined number.