Category: General Business

Summary: Strong year-end tax planning can strengthen compliance and improve cash flow. With the end of the fiscal year approaching, private companies across Ontario and Canada have a critical window to optimize their tax position. In this article, Aprio tax leaders offer some tips to help Canadian-controlled private corporations (CCPCs) and other small and mid-sized businesses plan their tax activities for success.

Even if you treat tax planning as more than a once-a-year event, year-end planning is a crucial final step to close the fiscal year and help ensure there are no surprises with your tax liability come filing season.

As a Canadian business, it’s important to make the most of your tax position to reduce the risk of unexpected liabilities, better manage your cash flow, and make smarter strategic business decisions for the current year and the year ahead.

Here are nine ways you can practice proactive tax planning at year-end.

1. Confirm Your Corporate Tax Rate and Use the Small Business Deduction

For the fiscal year ending March 2026, the Canadian federal small business tax rate remains 38% of income, or 28% after the federal tax abatement. However, for most small businesses, the tax rate will remain at 9% of the first $500,000 of active business income, where the 19% small business deduction (SBD) is applied. Zero-emission technology manufacturers may qualify for a further reduction to 4.5%.

To qualify for this rate, the company must be a Canadian-controlled private corporation (CCPC), and the income must meet that “active” status. Leveraging this deduction is the smartest tax move smaller Canadian businesses can make and should be a year-end priority.

Provinces then apply an additional small business rate, which is currently 3.2% for Ontario. Businesses must monitor two erosion factors:

• The federal deduction limit is reduced if taxable capital exceeds $10 million and is eliminated at the $50 million threshold.
• Earning more than $50,000 in passive investment may also impact it.

Reviewing these thresholds before year-end helps determine whether income should be accelerated or deferred, and whether investments should be structured differently to keep the SBD.

2. Review Capital Asset Purchases for the CRA’s Accelerated Investment Incentive

The Accelerated Investment Incentive from the Government of Canada offers an enhanced first-year depreciation allowance for specific eligible properties meeting the capital cost allowance (CCA) rules. Typically, this allows for up to 1.5x the net addition in the first year and suspends the half-year rule. If your business plans to acquire equipment, machinery, or technology, this can significantly boost your CCA deductions.

For manufacturers in Ontario specifically, capital improvements can be a major competitive driver. Be sure to review classes such as:

• Class 50 (computer equipment)
• Class 53 (manufacturing machinery with enhanced write-offs)
• Class 12 (tools and software)

Be sure to take these new rules into consideration and remember that assets must be operational and available for use in order to qualify as you plan significant purchases.

3. Evaluate Owner Compensation: Salary vs. Dividends

As a business owner, reviewing how you are compensated and understanding how that affects your tax liability is essential to year-end tax planning. The CRA offers guidance on the different tax implications for salary vs. dividends, and there’s no one correct answer. The best mix will depend on the business and the owner’s personal income needs, as well as retained earnings. However, consider these factors:

Salaries:

• Can create favourable retirement (RRSP) contribution room for the following year
• Are deductible for the corporation when paid within half a year of year-end
• Require formal payroll remittances and compliance work

Dividends:

• Are not deductible for the business
• Do not create RRSP room
• Can lower personal tax, depending on income

Many Canadian business owners use a blended approach to maximize benefits on both sides. Year-end is the ideal time to determine the most tax-efficient combination.

4. Manage Instalments and Year-End Tax Payments

If your tax liability is greater than $3,000, either this year or in the two prior tax years, you must make instalment payments, per CRA regulations, to be paid monthly or quarterly depending on eligibility.

Canadian businesses’ year-end tax planning should include:

• Reconciling what is paid to date
• Identifying any shortfall
• Making sure year-end payments are made on time

The CRA requires most corporations to pay any outstanding taxes within two to three months after year-end. Failing to meet this timeline will trigger non-deductible interest charges, which is a waste no business needs.

5. Review Income Splitting and Reasonableness Rules

The Tax on Split Income (TOSI) rule continues to apply to many private business structures. These rules restrict dividends paid to family members unless they meet very specific exclusions around their involvement, age, and ownership stake.

In Ontario specifically, many family-owned businesses use multi-shareholder structures for tax efficiency and succession planning so reviewing TOSI is essential. Confirm:

• Whether family members meet/still meet relevant criteria
• The reasonableness of salaries paid to relatives
• That all documentation of business involvement is present

TOSI compliance avoids a year-end shock when taxed punitively at the highest marginal rate for non-compliance.

6. Clean Up Shareholder Loans and Intercompany Balances

Under Canada’s Income Tax Act, shareholder loans typically must be repaid within one year of the business’s tax year. Otherwise, it will be treated as shareholder income. Year-end tax planning for Canadian businesses should always include a review of:

• Draws taken in the fiscal year
• Loans still outstanding
• Repayments needed to avoid tax consequences

Additionally, if your business is operating inter-provincially or across borders, intercompany transactions must also be properly documented and aligned with CRA guidelines.

7. Review Expense Documentation and Deductibility

Although the CRA has made moves to reduce compliance needs for smaller businesses, that doesn’t mean the documentation for small business deductions isn’t subject to intense scrutiny. Before year-end, businesses should verify their records across:

• Business-use vehicle logs
• Home-office expenses for owner-managers
• Meals and entertainment (with strict limits)
• Business travel expenses
• Digital tools, SaaS subscriptions, and technology investments

In Canada, documentation requirements are national and uniformly enforced across provinces.

8. Consider Bonuses and Year-End Accruals

Paying year-end bonuses? They can be a good strategy to reduce taxable corporate income, and may be deductible in the current year, if you pay them out within 180 days of year-end. However, the arrangement must be bona fide, and you must respect the payment timeline.

9. Plan for Upcoming Tax Changes

Good tax planning for Canadian businesses shouldn’t just be reactive. Now is a great time to proactively plan for the coming fiscal year, as well as wind down the one you are in. Businesses should take some time to review upcoming changes announced in federal or provincial budgets. For example, Budget 2024 announced federal changes to capital gains inclusion rates. November 2025 also saw Bill C-15 introduced, with significant incentives for clean technology and other notable tax position changes.

When you plan not just for this tax year but for upcoming legislative adjustments, you can significantly improve your business’s overall tax position and make sure you are prepared for the new year. Addressing your year-end tax planning in a timely fashion allows you to make informed decisions that support your financial stability and long-term growth.

Please connect with your advisor if you have any questions about this article.

This article was written by Aprio and originally appeared on 2026-01-28. Reprinted with permission from Aprio LLP. © 2026 Aprio LLP. All rights reserved. https://www.aprio.com/insights-events/top-year-end-tax-planning-tips-for-canadian-businesses-ins-article/

“Aprio” is the brand name under which Aprio, LLP, and Aprio Advisory Group, LLC (and its subsidiaries), provide professional services. LLP and Advisory (and its subsidiaries) practice as an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable law, regulations, and professional standards. LLP is a licensed independent CPA firm that provides attest services, and Advisory and its subsidiaries provide tax and business consulting services. Advisory and its subsidiaries are not licensed CPA firms.

This publication does not, and is not intended to, provide audit, tax, accounting, financial, investment, or legal advice. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Readers should consult a qualified tax advisor before taking any action based on the information herein.

Summary: Family-owned enterprises represent nearly 2/3 of all Canadian businesses, and they employ more than half of the country’s workers, generating close to half of private-sector GDP. A poorly managed generational transition carries economic consequences that can ripple into employment, capital formation, municipal tax bases, and supply chains.

Canada is entering a decade that will define the future of its private-sector economy. Six out of ten family enterprises are preparing to transfer ownership and control to the next generation, creating the largest shift of business leadership and wealth in the country’s history. Researchers at the Family Enterprise Legacy Institute (FELI) warn that the pace and scale of this turnover exceed the country’s current readiness.

FELI studies show that only 30% of family businesses survive into the second generation and only 12% reach the third. Those that do succeed tend to have documented governance protocols, clear economic rights for family shareholders, successor development pathways, and tax-efficient ownership structures. Others exit through distress sales or close altogether.

Why Succession Planning Matters for Family Enterprises

The absence of planning intensifies tension inside families. Owners often assume the next generation will learn the business the same way they did, by pushing through hardship and absorbing lessons from the field. FELI’s research shows this assumption creates risk, because entrepreneurial grit does not automatically translate into succession competence. Running a business and transferring one are different skill sets. The absence of a structured plan leaves successors unsure of compensation and decision rights. Two thirds of Canadian family enterprises have no formal succession plan, despite the scale of wealth at stake.

The McCain family feud serves as a good example of how unresolved governance structures can destabilize even the strongest businesses. A second-generation shareholder invoked her right to be bought out, triggering a dispute inside one of the country’s most prominent and valuable family enterprises. Families across Canada may not operate at a similar scale, but the dynamics are similar, where unresolved structures create pressure, and pressure produces conflict.

Planning reduces these tensions because it creates clarity around ownership transfer, liquidity, voting rights, roles for active and inactive shareholders, and pathways for leadership development. For executives responsible for tax and compliance, a succession plan brings predictability to year-end reporting and compensation models. For families, it prevents misunderstandings that erode relationships.

The Emotional and Operational Dimensions of Transition

Families carry more than financial assets into a succession. They bring personal histories and deeply held views about legacy – emotional factors that can influence operational decisions. A founder may hesitate to retire because the business represents their identity and purpose. A successor may resist taking control because the expectations feel overwhelming. Siblings may disagree on compensation or governance, even when the business performs well. These issues surface during transition and, if ignored, weaken decision-making capacity.

Advisors now use the concept of ‘emotional value’ to understand reluctance around major decisions. Emotional value explains why some owners refuse to sell even when liquidity would secure retirement. It also explains why a seemingly ready successor could perhaps remain disengaged.

Succession also requires patience. A founder’s exit can stretch across several years because operational knowledge transfers slowly. Seasoned employees need time to trust new leadership and customers need assurance that continuity will hold. Families who underestimate this timeline often feel rushed, which magnifies conflict.

Preparing for Succession

Once owners decide to transition, they must determine whether the successor will be a family member, a member of the management team, or an external buyer. Each path requires different readiness standards and different support systems. Successors need a clear view of the company’s future and must share how they plan to grow the business once they assume control.

Family enterprises often take up to a decade to move from initial planning to final transfer, especially when complex governance structures or multiple successors are involved. Owners benefit from engaging advisors early. Accountants, lawyers, bankers, and consultants bring structure to valuation, legal documentation, and even training.

When a family member or senior manager takes control, mentoring becomes essential. Successors need years of exposure to customers, employees, suppliers, and other stakeholders in the ecosystem of their business. They need to understand the company’s operations and culture. HR leaders play a key role by defining responsibilities and structuring training plans, including job shadowing. Families must also remain open to non-family successors. The next generation may not want the business and forcing the issue damages relationships. When no clear heir exists, structured coaching and planned onboarding allow external candidates to emerge.

Governance, Legal Structures, and Financial Complexity

Canadian tax law plays a decisive role in succession planning. The transfer of a family business can trigger significant tax liabilities if owners do not prepare early. Several structures help manage these exposures.

An estate freeze locks in the current value of the business for the founders, allowing future growth to accrue to the next generation. This structure limits the taxable value of the founders’ estate and places the future appreciation into a trust or directly into new common shares held by successors. The lifetime capital gains exemption (LCGE) provides C$1.25 million of tax relief on the sale of qualifying small business corporation (QSBC) shares, though eligibility requires careful review of asset composition and holding periods.

The intergenerational business transfer rules, introduced through Bill C-208 and amended significantly in 2024, allow genuine family transfers to be taxed as capital gains rather than dividends. This distinction matters because capital gains benefit more from exemptions and deferrals. The new rules impose stringent conditions to ensure authenticity of the transfer, including requirements related to control, management, voting rights, ownership duration, and active involvement of the successor. If the family meets these conditions, they may claim a capital gains reserve over a period of up to 10 years, improving cash-flow management during buyouts.

Where families cannot meet the intergenerational transfer requirements, an estate freeze or conventional sale remains the alternative. Each path carries legal and tax considerations that affect creditor rights and the voting structure.

Final Thoughts: Securing the Future of Family Businesses Through Early Succession Planning

Canada’s largest generational transfer is underway, and its outcome will have ramifications for employment and private-sector competitiveness. Family businesses are the economic backbone of the country, yet many lack the governance and legal frameworks needed to transition without disruption. A structured succession plan brings clarity and protects family relationships by documenting expectations before conflict emerges.

Families that begin planning early gain time to train successors, build governance systems, resolve emotional tensions, and implement tax-efficient structures.

Please connect with your advisor if you have any questions about this article.

This article was written by Aprio and originally appeared on 2026-01-16. Reprinted with permission from Aprio LLP. © 2026 Aprio LLP. All rights reserved. https://www.aprio.com/insights-events/family-business-succession-in-canada-the-transition-that-will-shape-an-economy-ins-article/

“Aprio” is the brand name under which Aprio, LLP, and Aprio Advisory Group, LLC (and its subsidiaries), provide professional services. LLP and Advisory (and its subsidiaries) practice as an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable law, regulations, and professional standards. LLP is a licensed independent CPA firm that provides attest services, and Advisory and its subsidiaries provide tax and business consulting services. Advisory and its subsidiaries are not licensed CPA firms.

This publication does not, and is not intended to, provide audit, tax, accounting, financial, investment, or legal advice. Readers should consult a qualified professional advisor before taking any action based on the information herein.

With the most recent federal election resulting in a Liberal minority government, individuals and businesses should be aware of their tax-related platform proposals, as summarized in the listing below. Many are broad and lack detail, and some were previously announced by the former government.

Business items included:

• reintroducing the Multi-Unit Rental Building (MURB) tax incentive for home builders (first introduced in the 1970s);
• broadening the critical mineral exploration tax credit by expanding qualifying minerals to include critical minerals necessary for defence, semiconductors, energy, and other clean technologies;
• expanding eligible activities under Canadian exploration expenses to include the costs of technical studies, such as engineering, economic, and feasibility studies for critical minerals projects;
• modifying the clean technology manufacturing investment tax credit to include critical mineral mine development expenses for brownfield sites while expanding the list of priority critical minerals;
• extending the Carbon Capture, Utilization and Storage (CCUS) investment tax credit to 2035; • reinstating the CCA accelerated investment incentive, including immediate expensing for manufacturing or processing machinery and equipment, clean energy generation, energy conservation equipment, and zeroemission vehicles;
• increasing the claimable amount under the Scientific Research and Experimental Development tax incentive program (SR&ED) for Canadian companies to $6 million (from $3 million);
• establishing a Canadian patent box which, according to the costing submission made to the Parliamentary Budget Officer, would carry a tax rate that is half of the current federal corporate income tax rate on income derived from certain types of intellectual property, effective July 1, 2025;
• expanding the flow-through share regime to include certain startups, allowing investors to deduct eligible R&D expenses directly;
• reducing/removing interprovincial trade barriers and achieving mutual recognition of credentials; and
• introducing a 20% Artificial Intelligence (AI) deployment tax credit for small and medium-sized businesses in respect of qualifying AI adoption projects, if the taxpayer can demonstrate that the AI expenditure increases jobs.

CRA items included:

• introducing automatic tax filing, starting with low-income households and seniors;
• leveraging technology to better identify and prosecute instances of tax evasion, fix loopholes, and strengthen enforcement; and
• collecting an additional $3.75 billion from increasing penalties and fines over a three-year period.

Capital gains/losses items included:

• cancelling the proposed increase to the capital gains inclusion rate, thereby retaining the 50% inclusion rate.

Corporate tax items included:

• conducting a review of the corporate tax system based on the principles of fairness, transparency, simplicity, sustainability, and competitiveness.

Employment items included:

• expanding the labour mobility tax deduction to cover tradespeople who travel more than 120 km from their home to a job site (currently 150 km), as well as significantly increasing the per-year tax deduction limit (no amounts were provided);
• supporting workers affected by US tariffs by implementing various EI measures; and
• enhancing the EI system to better reflect the modern workforce with flexible support.

Estate planning items included:

• reducing the minimum amount that must be withdrawn from a Registered Retirement Income Fund (RRIF) by 25% for one year; and
• increasing the guaranteed income supplement (GIS) by 5%.

GST/HST items included:

• reducing GST costs for first-time homebuyers by eliminating the GST on homes up to $1 million and reducing it on homes between $1 million and $1.5 million.

Personal items included:

• reducing the marginal tax rate on the lowest tax bracket by 1%; • reviewing and reforming the process to apply for the Disability Tax Credit (DTC);
• introducing an apprenticeship grant of up to $8,000 for registered apprentices (it would convert to an interest-free loan if the program was not completed) in addition to the current $20,000 interest-free loan provided to apprentices; and
• introducing a refundable health care workers hero tax credit for personal support workers valued at up to $1,100 a year.

Watch for developments in these areas!

As of June 16, 2025, CRA changed the default correspondence method for most businesses to online only (i.e. not delivered by paper mail). As business correspondence is presumed received on the date that it is posted online to CRA’s My Business Account, it can be problematic if correspondence requiring action goes unnoticed.

To receive notifications that mail has been posted online, the taxpayer must provide CRA with an email address and register that address for notifications related to each applicable program (e.g. GST/HST, payroll, corporate tax, etc). Regardless of whether the business registers for notifications or even provides an email address, it will still be transitioned to online mail. The presumption of receipt applies regardless of whether the taxpayer receives notifications. Businesses should ensure to sign up for My Business Account to avoid losing access to important CRA correspondence.

Businesses can opt out of receiving online mail (thereby receiving paper mail) by changing their settings in the Profile section of My Business Account or by submitting Form RC681 Request to Activate Paper Mail for My Business to CRA. However, CRA may still provide online-only mail until they finish processing the request. Communications posted within 30 days of a request are still presumed to be received on the day of posting. As such, taxpayers should monitor their online CRA account during the transition period. Requests can only be made by an individual with signing authority, such as an owner, director or legal representative as reflected in CRA’s records.

It is important to ensure that mailing addresses are kept current as undeliverable mail will result in a change back to online mail. In addition, businesses will need to make a new request to activate paper mail every two years.

If paper mail is selected for existing business program accounts and a new account is registered, a new request for paper mail will be required for that account.

Consider whether paper mail or online-only mail is your preferred method of communication with CRA. If you prefer paper mail, ensure to opt out of online mail for all relevant program accounts and monitor your online accounts during the transition period.