Owning a CCPC (Canadian-controlled private corporation) gives access to the main tax planning tools Canada offers business owners: the small business deduction (11.2% combined rate in Ontario on the first $500K of active income, effective July 1, 2026, vs 26.5% above), the lifetime capital gains exemption on the sale of qualifying shares, and the choice of when and how to pay yourself through salary, dividends or a combination. This guide covers the corporate rates, the small business deduction rules, RDTOH and GRIP, and the year-end checklist; it is part of the corporate, trust and estate tax guides.
CCPC Tax Rates
| Income Type | Federal Rate | Provincial Rate (ON example) | Combined Rate |
|---|---|---|---|
| Active income (first $500K) | 9.0% | 2.2% | 11.2% |
| Active income (over $500K) | 15.0% | 11.5% | 26.5% |
| Investment income (passive) | 38 2/3% (28% after the federal abatement plus a 10 2/3% additional refundable tax) | ~11.5% | ~50.2% (Ontario example) |
| Capital gains (50% taxable) | ~19.3% | ~5.8% | ~25.1% (effective) |
| Canadian dividends received | Part IV tax can apply (refundable) | None | 38 1/3% Part IV tax on dividends from non-connected corporations, refundable as taxable dividends are paid (up to the RDTOH balance) |
Paying Yourself: Salary, Dividends or Both
How an owner takes money out of the corporation is the other half of CCPC planning. Salary is deductible to the corporation and creates RRSP room (at 18% of earned income) and CPP pension credits; dividends come out of after-tax profit, need no payroll and build neither. The full comparison, with Ontario worked examples and how a mix is usually built, is in salary vs dividends from your corporation.
Small Business Deduction (SBD) Rules
| Rule | Details |
|---|---|
| SBD limit | $500,000 of active business income |
| Associated corporations | Must share the $500K limit |
| Taxable capital grind | SBD reduced when taxable capital exceeds $10M, eliminated at $15M |
| Passive income grind | SBD reduced $5 for every $1 of passive income (AAII) over $50,000 |
| Passive income elimination | SBD eliminated when passive income reaches $150,000 |
| Clawback impact | $100K passive income → SBD limit drops to $250,000 |
Passive Income and the Small Business Deduction
Investment income the corporation earns on retained profits counts against the small business deduction: once adjusted aggregate investment income passes $50,000 in a year, the next year’s business limit falls by $5 for every dollar over, reaching zero at $150,000. What counts, the worked numbers and the usual ways owners manage it are on the passive income grind page.
RDTOH and GRIP Explained
| Concept | What It Is | Practical Impact |
|---|---|---|
| RDTOH (Refundable Dividend Tax on Hand) | Tax refunded to corporation when taxable dividends are paid out | Refund of up to 38 1/3% of taxable dividends paid, never more than the RDTOH balance (this differs from the 30 2/3% refundable portion of Part I tax on investment income that is added to the pool) |
| Eligible RDTOH | Tracks refundable tax on eligible portfolio dividends | Refunded when eligible dividends paid |
| Non-eligible RDTOH | Tracks the refundable part of Part I tax on investment income, plus Part IV tax not counted in eligible RDTOH | Refunded when non-eligible dividends paid |
| GRIP (General Rate Income Pool) | Tracks income taxed at general corporate rate (not SBD) | Allows eligible dividend designation |
| LRIP (Low Rate Income Pool) | Tracks SBD income | Non-eligible dividends from LRIP |
Year-End Tax Planning Checklist
| Action | Timing | Purpose |
|---|---|---|
| Review salary vs dividend mix | Before year-end | Optimize RRSP room and overall tax |
| Bonus accrual (if needed) | Before year-end, pay within 180 days | Deduction in current year, pay next year |
| Asset purchases (CCA) | Before year-end | Accelerated CCA in first year |
| Shareholder loan repayment | Within 1 year of year-end | Avoid shareholder loan inclusion |
| Review passive income level | Before year-end | Manage SBD grind |
| Declare dividends | Before year-end (or after, plan carefully) | Optimize personal vs corporate cash |
| IPP/RCA contributions | Before year-end | Tax-sheltered retirement savings beyond RRSP |
| Charitable donations | Before year-end | Corporate donation credit |
The Bottom Line
The small business deduction is the core of CCPC planning: active income up to the business limit is taxed at a much lower rate than income above it, and passive investment income inside the corporation can take that rate away. Salary builds RRSP room and CPP while dividends avoid payroll and CPP, so most owners weigh a mix (see the salary vs dividend comparison). Owner-managers who want to save more for retirement than the RRSP allows can look at an individual pension plan, funded by the corporation. The difference between a structure that has been planned and one that hasn’t can run to thousands of dollars a year in a profitable business, which is why many owners have an accountant review it before each year-end.
Related Articles
Sources
The figures and rules on this page come from these sources, last checked against them between August 29, 2026 and September 25, 2026. How we check facts.
- Canada Revenue Agency: Corporation tax rates
- Canada Revenue Agency: How contributions affect your RRSP deduction limit
- Canada Revenue Agency: Small business deduction rules
- Canada Revenue Agency: Dividend refund rules