Corporate, Trust and Estate Tax in Canada

These guides cover the tax rules that apply once income runs through something other than your own personal return: a corporation you own, a trust you set up or manage, or the estate of someone who has died. For your own return, start with the income tax guides or the taxes section.

At a glance: a Canadian-controlled private corporation pays federal tax of 9% on its first $500,000 of active business income and 15% on active income above that, plus provincial tax; its investment income is taxed federally at 38 2/3%, part of which is refunded when it pays dividends. The full rate table and the rules behind it are in the CCPC tax planning guide.

Corporate structures

• CCPC tax planning guide: federal and provincial corporate rates, the small business deduction, RDTOH and GRIP, and a year-end checklist.
• Professional corporations: which professions can incorporate in each province, share restrictions, the tax deferral and the personal services business trap.
• Setting up a holding company: how a holdco sits above an operating company, what it costs, when it pays and how it is used for an estate freeze.
• Management companies: charging management fees to an operating company, the reasonableness test and when CRA reassesses.

Whether to incorporate in the first place is weighed on the self-employed vs incorporated page.

Paying yourself and investing inside the corporation

• Salary vs dividends from your corporation: integration, RRSP room and CPP from salary, Ontario comparisons and how a mix is built.
• Passive income in a corporation: how more than $50,000 of investment income a year shrinks the small business deduction, and the ways owners manage it.

Corporate tax payments

• Corporate tax instalments: who pays, monthly vs quarterly schedules, the three calculation methods, balance-due day and instalment interest. Individuals who pay instalments on their own return have a separate guide to personal tax instalments.

Selling a business

• Selling your business: asset sale vs share sale, earn-outs and what to do with the proceeds. The exemption that can shelter much of the gain on a share sale has its own guide to the lifetime capital gains exemption.

Trusts

• Family trusts: how they work, setup and costs, income splitting, the tax on split income (TOSI) and the 21-year deemed disposition rule.
• Testamentary vs inter vivos trusts: the two kinds of trust compared, including graduated rate estates and qualified disability trusts.
• Bare trust rules: when a bare trust has to file a T3 return and Schedule 15, and the current exemption.

Estates

• Filing taxes for someone who died: the final return, optional returns, the estate’s T3 return and the clearance certificate.
• Taxes at death: the deemed disposition of capital property and how RRSPs and RRIFs are taxed when the owner dies.
• Probate fees by province: what each province charges to probate a will.