The owner's glossary
Every term your accountant uses, in plain English.
Definitions first, then Jason's take on when the concept actually matters — with links to the episodes that go deep.
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Definitions first, then Jason's take on when the concept actually matters — with links to the episodes that go deep.
A contractual loan used to split investment income between family members.
A prescribed-rate loan lends money to a lower-income spouse or a family trust at the CRA's prescribed interest rate. The interest must actually be paid in cash by January 30 following each year — miss that date once and the attribution rules apply to that loan permanently, for every future year. Provided it is paid on time, investment income earned above that rate is taxed in the lower-income hands instead of yours — a legitimate income-splitting tool. The rate is locked in when the loan is made.
Income splitting got harder after changes to tax law in 2018, but the prescribed-rate loan survived. Lock one in when rates are low and it keeps working for years.
A tax-deferred transfer of assets to a spouse at death.
A spousal rollover lets capital assets pass to a surviving spouse (or a qualifying spousal trust) at their tax cost rather than fair market value, deferring the capital gain until the spouse sells or dies. It is a foundational tool for deferring tax through the first death.
The spousal rollover buys time, not forgiveness — the tax still lands on the second death. Good planning uses the deferral; it doesn't pretend the bill disappeared. And in some cases, it may make sense not to use it.
Strategies that reduce double taxation on a corporation after death.
Post-mortem planning restructures a deceased owner's corporate holdings to avoid being taxed twice — once on the shares at death and again on extracting the assets. A 'pipeline' transaction extracts corporate value at capital-gains rates; a loss-carryback on a share redemption can offset the first-level gain. Tight deadlines apply.
With no planning, a holdco can lose a huge share of its value to double tax. With the right post-mortem work, dramatically less — but the clock starts ticking at death.
The tax rule that treats your assets as sold at death, triggering gains.
At death you are generally deemed to have sold your capital assets — including private-company shares — at fair market value, triggering any accrued capital gain on your final return. A transfer to a spouse or a qualifying spousal trust can defer this until the second death.
The deemed disposition is why an owner can face a huge tax bill at death with no cash to pay it. Plan the liquidity before the event, not after.
A trust for those 65+ that avoids probate and can replace a will.
An alter ego trust (or, for couples, a joint partner trust) is available to people 65 or older. Assets transferred in roll over tax-deferred, avoid probate on death, and pass privately outside the will. It can also serve as a power-of-attorney substitute for managing assets if capacity declines.
For the right 65-plus owner, an alter ego trust quietly solves probate, privacy and incapacity in one structure. It's underused.
A trust that provides for a disabled beneficiary without cutting their benefits.
A Henson trust holds assets for a disabled beneficiary at the trustee's absolute discretion, so the funds don't count against means-tested disability benefits like ODSP. A Henson trust created in a will can also elect Qualified Disability Trust status and access graduated tax rates — but only if it is testamentary, and only where the beneficiary qualifies for the Disability Tax Credit, a narrower test than ODSP eligibility. An inter vivos Henson trust can never qualify. A specialized but powerful estate tool.
Leaving money directly to a disabled child can disqualify them from the very benefits they rely on. The Henson trust is how you help without harming.
An estate taxed at graduated rates for up to 36 months after death.
A Graduated Rate Estate is a deceased person's estate that qualifies for graduated (rather than top-flat) tax rates for up to 36 months after death, along with other planning advantages. Only one GRE is allowed per person and specific conditions apply. It is a key post-mortem planning tool.
The GRE is a short, valuable window. Waste the 36 months and you lose planning room you can't get back.
The person who administers your estate and carries out your will.
An executor (estate trustee) gathers your assets, pays debts and taxes, and distributes what remains under your will. The role carries real legal liability — an executor who distributes before settling taxes can be personally on the hook — and can be time-consuming, especially with a business or digital assets involved.
When someone asks whether they should agree to be an executor, the honest default answer is usually no. It's a thankless, risky job people badly underestimate.
Dying without a valid will, so a government formula divides your estate.
If you die intestate — without a valid will — provincial law decides who inherits and in what shares, and appoints an administrator. The result rarely matches what you'd have chosen, can be tax-inefficient, and is especially disruptive when a private business is involved.
Dying with no will is a reliable way to make your family resent you. For a business owner it can also freeze the company at the worst possible moment.
Legal authority for someone to act for you if you lose capacity.
A power of attorney appoints someone to make decisions if you can't. A power of attorney for property covers financial and business decisions; a power of attorney for personal care covers health and living decisions. A 'springing' version activates only on proven incapacity. Both are separate from your will.
Owners obsess over the will and forget the POA — but incapacity, not death, is what leaves a business rudderless overnight. Name someone who can actually run things.
A two-will structure that keeps private-company shares out of probate.
A dual-will strategy uses a primary will for assets that require probate and a secondary will for assets that don't — chiefly private-company shares. Only the primary will is probated, so the value of the shares escapes estate administration tax. It is common in provinces like Ontario.
On a company worth a few million, a second will can save a percentage of its value for a modest legal fee. I point business owners to it constantly.
A tax on the value of assets that pass through your will.
Also called probate, estate administration tax is charged on the value of assets distributed through your will. In Ontario it is 1.5% on estate value above $50,000 (as of 2026), with nothing owed on the first $50,000. Assets with named beneficiaries or held jointly can pass outside probate.
For an owner with private-company shares, keeping those shares out of probate — usually with a second will — is one of the cheapest, highest-return moves in an estate plan.
A legal obligation requiring a financial professional to act in the client's best interest.
A legal and ethical obligation requiring a financial professional to act in the best interest of their client, placing the client's interests ahead of their own. In Canada, some designations like the RFP carry a fiduciary standard. Registrants are held to the Client Focused Reforms, which set the suitability standard under NI 31-103; intermediaries licensed only for insurance sit outside those rules and are governed by CISRO's conduct principles instead.
The highest legal standard of care — the client's interests ahead of your own, at all times. There are only a couple of ways you're legally bound as a fiduciary in this country. Suitability is not the same thing, and that distinction matters more than most people realise.
Preparing for the eventual transfer of business ownership and leadership.
The process of preparing for the eventual transfer of business ownership and leadership to the next generation, employees, or external parties. Effective succession planning addresses legal structures, tax optimization, leadership development, and business continuity to maximize value and minimize disruption.
The average successful succession takes five to seven years. Owners are so busy running the business that they never start, then assume the kids will take it — and the kids may be disengaged, unwilling to pay for it, or uninterested in controlling it. Ask the question early enough that the answer still leaves you options.
The comprehensive investigation process undertaken before buying or selling a business.
The comprehensive investigation and analysis process undertaken before buying or selling a business. Due diligence covers financial records, legal obligations, contracts, employee matters, tax liabilities, and operational risks to ensure the buyer has a complete and accurate understanding of what they are acquiring.
A deep audit of your books, records and contracts, usually followed by representations and warranties you'll personally stand behind. It's onerous and it has to happen — and the deficiencies it surfaces are exactly the ones you should have cleaned up long before going to market.
Two structures for selling a business with significantly different tax outcomes.
The two structures for selling a business, with significantly different tax outcomes. In an asset sale, the corporation sells its assets and proceeds are taxed inside the corporation. In a share sale, the shareholder sells their shares directly and may access the Lifetime Capital Gains Exemption. Buyers typically prefer asset sales while sellers prefer share sales.
As a rule, sellers lean toward share sales and buyers toward asset sales — that tension is the negotiation. The Lifetime Capital Gains Exemption is why it matters: it doesn't apply to an asset sale, so taking that route can forfeit a great deal of tax-sheltered money.
The two primary methods of extracting income from a corporation.
The two primary methods of extracting income from a corporation, each with distinct tax and planning implications. Salary is deductible to the corporation and generates RRSP contribution room, while dividends are paid from after-tax corporate income and carry dividend tax credits that reduce the shareholder's personal tax.
Dividends are not automatically the smarter way to pay yourself. They attract no CPP contributions and generate no RRSP room, and the tax bill is often higher than owners expect. It's rarely all one or the other — most owners land on a mix once they understand the trade-offs.
The advantage of retaining income in a corporation taxed at the lower small business rate.
The advantage gained when a business owner retains income inside a corporation taxed at the lower small business rate, rather than paying it out as personal income at a higher marginal rate. The deferred tax is eventually paid when funds are withdrawn as salary or dividends, but the interim savings can be invested for additional growth. Tax deferral only really applies to active business income earned by an operating business. Passive income earned by investing within a corporation does not result in a deferral advantage.
The deferral isn't a saving. Once you take the money out, corporate tax plus personal tax lands in much the same place. The real advantage is that the business has more capital to reinvest in the meantime — and it's less lucrative than it used to be beyond a certain threshold.
The tax principle ensuring corporate and personal income are taxed at roughly the same total rate.
The Canadian tax principle designed to ensure that income earned through a corporation and distributed to shareholders is taxed at roughly the same total rate as income earned directly by an individual or when deciding to take dividends versus income. While perfect integration is a theoretical goal, imperfections exist depending on province and type of income.
A federal tax deduction reducing the corporate rate on the first $500,000 of active business income.
A federal tax deduction that reduces the corporate tax rate on the first $500,000 of active business income earned by a CCPC. The SBD is the primary mechanism providing small businesses with a lower tax rate, currently resulting in a combined federal-provincial rate of approximately 9–12% depending on province (2026).
The first $500,000 of active business income is taxed around 10 to 12% instead of 26%. Earn more than $50,000 of interest and the next dollar takes away $5 of that. And if the deduction is disallowed outright, you're looking at roughly 26.5% instead of 12.2% — more than double the bill you were expecting.
Non-operating income from investments taxed at higher corporate rates.
Income earned by a corporation from sources other than active business operations, including interest, foreign dividends, rental income, and capital gains. Passive income is taxed at a higher corporate rate and, when exceeding $50,000 annually, triggers a reduction in the Small Business Deduction.
Earn more than $50,000 of investment income and you start losing the small business rate at $5 for every $1 earned — which is how you end up with effective marginal rates north of 80%, and past 100% in the provinces that mirrored the federal grind. Ontario and New Brunswick didn't.
Income from core business operations eligible for the Small Business Deduction.
Income earned by a corporation from its core business operations, as opposed to passive investment income. Active business income earned by a CCPC qualifies for the Small Business Deduction, resulting in a significantly lower combined tax rate on the first $500,000 federally. Provincial business limits differ — Nova Scotia's is $700,000, and Saskatchewan and Prince Edward Island are $600,000.
The first half million is taxed in the low teens, everything above it at roughly 26%. What owners miss is that the cheap rate starts disappearing once capital passes $10 million, and it's gone entirely by $50 million.
A corporation whose primary purpose is to hold investments or shares of an operating company.
A corporation whose primary purpose is to hold investments, real estate, or shares of an operating company. Holding companies protect retained earnings from operating business risks, facilitate estate freezes, and enable tax-efficient transfers of wealth between generations.
Don't use your operating company as a savings vehicle. Once you have real money accumulating, you need a holdco. But structure it properly — a holding company can't claim the capital gains exemption, which is only available to individuals, so if it owns the opco you may need to sell both sets of shares to qualify.
A legal arrangement holding assets for the benefit of family member beneficiaries.
A legal arrangement commonly used in business succession planning where a trustee holds assets for the benefit of family member beneficiaries. Family trusts multiply access to the Lifetime Capital Gains Exemption and provide a flexible mechanism for distributing business ownership. Income splitting through a trust is much narrower since 2018 — the tax on split income rules tax dividends to adult family members at the top marginal rate unless an exception applies, and the excluded-shares exception is unavailable to shares held through a trust.
A trust is a separate legal entity run by a trustee. Beneficiaries get what they get, but they don't dictate terms. The planning value is multiplication: put the children in as beneficiaries and each one has their own lifetime capital gains exemption. Asked whether you'd rather send that money to the CRA or to your grandchild, the answer is fairly obvious.
A tax strategy that locks current share value and shifts future growth to the next generation.
A tax planning strategy that locks the current value of a business owner's shares, directing all future growth to the next generation or a family trust. This limits the capital gains tax exposure on the owner's death and facilitates an orderly transfer of wealth and business control.
A freeze stops the growth in your name and moves it to the next generation, and you don't have to wait until there's a tax bill to do it. At its core this isn't a tax exercise — it's a succession and family dynamics exercise that happens to have tax consequences.
A loan between a corporation and its shareholder requiring careful tax management.
A loan between a corporation and its shareholder, which must be carefully managed to avoid adverse tax consequences. If not repaid within one year following the corporation's fiscal year-end, the loan is included in the shareholder's income for the year it was received — reopening an earlier return, with arrears interest, rather than a current-year tax bill. Repaying just before the deadline and re-borrowing does not solve it: relief is denied where the repayment is part of a series of loans and repayments.
Clear these before any sale. Nobody wants to take over a business and simultaneously owe money to the former shareholder. And you can't have it both ways — if you've extracted value through the loan, you can't ask for that same value again in the purchase price.
A corporate-funded plan that reimburses medical expenses as a tax-deductible business cost.
A Private Health Services Plan that allows corporations to provide tax-deductible health and dental benefits to employees. For incorporated business owners, HSA claims are a deductible expense to the corporation and a benefit that is tax-free federally and in every province except Quebec, where employer contributions to a private health services plan are a taxable benefit provincially, making them more efficient than paying for medical expenses personally.
Watch the loading. People quote 10% and it's usually 10% plus plus — I've seen 15 to the low twenties. And don't do the thing where you skip the plan and just reimburse receipts personally: there are private health services plan rules, and that's likely offside.
Canada's mandatory contributory social insurance program for retirement and disability benefits.
A mandatory contributory social insurance program providing retirement, disability, and survivor benefits to working Canadians. Business owners paying themselves salary must contribute both the employee and employer portions, though the employer portion is a deductible business expense.
Skipping CPP by paying yourself dividends isn't a tax saving — it's giving up a guaranteed indexed pension for life, and no investment portfolio compares to that one for one. The idea that the employer pays half is mental accounting; it all comes out of the same pot.
A registered account where investment growth and withdrawals are completely tax-free.
A registered account that allows Canadians over 18 to earn investment income tax-free, with no tax on withdrawals. Unlike RRSPs, contributions are not tax-deductible, but all growth and withdrawals are completely tax-free, and withdrawn amounts are re-added to contribution room the following year.
Comparing the TFSA to the RRSP is a popular debate. The term “tax-free” often leads people to prioritize it, but the best option depends on your own situation.
A tax-deferred retirement savings vehicle for Canadians.
A tax-deferred retirement savings vehicle that allows Canadians to deduct contributions from taxable income and grow investments tax-free until withdrawal. Contribution room is based on 18% of prior year earned income, up to an annual maximum, and unused room carries forward indefinitely.
If you're eligible for an FHSA, fill that first — RRSP room carries forward indefinitely and can be caught up in lump sums; the FHSA only ever lets you carry forward one year's $8,000. And remember that paying yourself in dividends generates no RRSP room at all.
A registered account combining RRSP and TFSA benefits for first-time home buyers.
A registered account introduced in 2023 that combines RRSP and TFSA benefits for first-time home buyers. Contributions are tax-deductible up to $8,000 per year and $40,000 lifetime, and withdrawals for a qualifying home purchase are tax-free.
My least favourite account ever. The same thing could have been achieved by expanding RRSP room and fixing the Home Buyers' Plan, and it does nothing for affordability — only accessibility. That said, if you qualify, fill the FHSA before the RRSP: RRSP room carries forward indefinitely and can be caught up in lump sums; the FHSA lets you carry forward one year's $8,000 and no more.
A tax exemption sheltering capital gains on qualifying small business share sales.
A tax provision allowing Canadian residents to shelter capital gains on the sale of qualifying small business corporation shares from taxation, up to $1,274,000 (2026 indexed amount). Multiple family members can each access their own exemption through structures like family trusts.
Watch the purity test: if more than 10% of your assets are passive at the time of sale — or 50% in the two years before — you lose it. It applies only to share sales by individuals, so an asset sale forfeits it entirely. Structured through a family trust, it can be multiplied across several family members.
A defined benefit pension plan designed for incorporated business owners and key employees.
A registered defined benefit pension plan designed for incorporated business owners and key employees, typically over age 40. IPPs allow larger tax-deductible contributions than RRSPs, may provide creditor protection under applicable pension legislation — an Ontario plan that elects exemption from the Pension Benefits Act loses it — and can include provisions for past service benefits.
Done right, an IPP is the equivalent of having 1.6 RRSPs. Almost every incorporated owner should at least look at one — but the contributions are required, so if you're in a highly volatile industry, think hard before committing.
A notional account tracking the non-taxable portion of capital gains and insurance proceeds.
A notional tax account that tracks the non-taxable portion of a private corporation's capital gains and certain life insurance proceeds. The CDA balance can be distributed to shareholders as tax-free capital dividends, making it a key tool for tax-efficient extraction of corporate wealth.
The CDA is the non-taxable half of a capital gain, sitting in a notional account you can draw tax-free at any time. In my opinion, best practice is to take it as soon as it's available — book it as a shareholder loan and draw it down — as it allows the business owner to pull the funds at any time after the election is made, and the real value of it erodes the longer you leave it sitting there.
The measure of passive income that can reduce a corporation's Small Business Deduction.
Adjusted Aggregate Investment Income is the measure of a corporation's passive investment income used to determine reductions in the Small Business Deduction business limit. When AAII exceeds $50,000, the $500,000 small business limit is reduced by $5 for every $1 of excess, reaching zero at $150,000 of AAII.
A refundable tax mechanism for passive investment income earned inside a corporation.
Refundable Dividend Tax on Hand is a tax mechanism that applies to passive investment income earned inside a private corporation. The corporation pays a high rate of tax on passive income, a portion of which is refunded when taxable dividends are paid to shareholders, ensuring integration with the personal tax system. There are two types of RDTOH: eligible and non-eligible. Both have implications for how much your company gets refunded and how much tax you pay personally.
A notional account that never shows up on your balance sheet: take about $2.60 out in dividends and you get $1 back from the feds. The refund exists so that corporate tax plus personal tax doesn't end up exceeding what you'd have paid earning the money personally.
A private corporation incorporated in Canada not controlled by non-residents or public companies.
A Canadian-Controlled Private Corporation is a private corporation incorporated in Canada that is not controlled by non-residents or public corporations. CCPCs qualify for preferential tax treatment including the Small Business Deduction and the Lifetime Capital Gains Exemption on qualifying share sales.
The test is spelled out in the name. It has to be incorporated — sole proprietorships and partnerships don't qualify — it has to be incorporated here, and it has to be private and Canadian-controlled: control by a foreign or public company breaks it.