Financial planning for Canadian business owners.

The LCGE is a federal tax exemption that lets qualifying small business owners shelter a significant amount of capital gains when they sell shares of a qualifying small business corporation. In 2026 the lifetime limit is $1,274,000. You must meet the qualified small business corporation test — broadly, your corporation must be a Canadian-controlled private corporation where at least 90% of asset fair market value is used in an active business carried on primarily in Canada at the time of sale. There is also a 24-month holding test, and it is more forgiving than it sounds: the shares must not have been owned by anyone other than you or a person related to you throughout the 24 months before the sale, so shares received from a spouse or a related company can still qualify.

It depends on your situation. A holdco is useful for creditor-proofing retained earnings, tax-deferred compounding, and — within limits — income splitting. Since 2018 the tax on split income rules tax dividends to adult family members at the top marginal rate unless a narrow exception applies, and the excluded-shares exception is not available for holdco shares or shares held through a trust. A holdco also adds compliance cost, complicates your LCGE eligibility if structured poorly, and is not necessary for every owner. The decision turns on your retained earnings, tax rate differential, and long-term exit plan.

An earnout is a portion of the purchase price that is contingent on the business hitting future performance targets after the sale. The tax treatment is not automatic. CRA's cost-recovery method in IT-426R can treat earnout receipts as proceeds of disposition as they are received, but it is an administrative concession with conditions — including an arm's-length sale, an earnout ending within five years, and a filed undertaking. Where it does not apply, the alternatives are worse: proceeds fixed at closing, or the earnout taxed as ordinary income under paragraph 12(1)(g), with no capital gains treatment and no LCGE on that portion. Structure this with your lawyer and accountant before signing, not after.

An estate freeze — typically done with a Section 86 share exchange — locks in the current value of your shares as preferred shares and transfers future growth to the next generation or a family trust. It caps your future tax liability and starts the clock for your heirs to accumulate their own capital gains room, including potential LCGE eligibility. Best done while the business still has significant growth ahead.

For higher-income owners over 40, an Individual Pension Plan often allows much larger tax-deductible contributions than an RRSP, and it targets a defined retirement benefit funded by your corporation. That benefit is a promise from your own company, not an externally guaranteed pension — individual pension plans are not covered by Ontario's Pension Benefit Guarantee Fund. It is also more expensive to administer and the assets are more restricted. Whether it makes sense depends on your age, T4 income level, and whether your corporation can sustain the required funding contributions.

Woodgate Financial is a financial planning firm. Jason Pereira has worked with Canadian business owners for over 20 years and holds the MBA, CFA, CFP (Can & US), RFP and TEP designations, and is an FP Canada Fellow. The content here is evidence-based and editorially independent.