Services · Owner-Managed Businesses
Accounting and tax for owner-managed businesses
For incorporated companies run by their owners, Amir Rosenthal, CPA, CA, LPA, CBV, CFF, handles the year-end, the corporate tax, and the decisions that sit between the company and the owner’s own tax.
What the work covers
- Year-end financial statements and the T2 corporate tax return (see audit and accounting for compilation, review, and audit).
- Owner compensation: salary, dividends, or a mix.
- Paying family members within the tax on split income (TOSI) rules.
- The small business deduction and keeping access to it as the company grows.
- Taking money out sensibly, including shareholder loans and holding companies.
- Family-owned groups with several companies or a trust: see the family business office.
- Planning ahead for a sale, an estate freeze, or passing the business to the next generation.
Salary or dividends?
How you pay yourself affects your personal tax, the company’s tax, your RRSP room, and your Canada Pension Plan. Neither option is always better; many owners use a mix that changes from year to year.
Salary compared with dividends
| Salary (or bonus) | Dividends | |
|---|---|---|
| Deductible to the company? | Yes, if reasonable | No, paid from after-tax profits |
| Creates RRSP room? | Yes (18% of earned income, up to the annual limit) | No |
| CPP contributions? | Yes, employer and employee portions | No |
| Personal tax | Taxed as employment income | Taxed with a dividend tax credit |
| Paperwork | Payroll remittances and a T4 slip | Directors’ resolution and a T5 slip |
Paying family members: TOSI
Since 2018, when the rules were expanded beyond children under 18, the tax on split income (TOSI) rules can tax dividends and some other amounts paid to family members at the top personal rate, which removes the benefit of income splitting, unless an exclusion applies.
Common exclusions include:
- a family member aged 18 or older who is actively engaged in the business on a regular, continuous and substantial basis in the current year or in any five earlier years (working an average of at least 20 hours a week counts);
- certain shareholders aged 25 or older who own at least 10% of the votes and value of a company that is not a professional corporation and that earns less than 90% of its business income from services; and
- a spouse when the business owner is 65 or older, if the amount would have been excluded for the owner.
Salary paid to a family member has to be reasonable for the work actually done.
The small business deduction
A Canadian-controlled private corporation pays a lower federal rate of 9%, instead of 15%, on its first $500,000 of active business income each year. Ontario also has a lower small business rate of 3.2% before July 1, 2026 and 2.2% from July 1, 2026 (instead of Ontario’s 11.5% general rate), so the combined federal and Ontario small business rate is now 11.2%. For a tax year that spans July 1, 2026, the two Ontario rates are prorated by days.
The $500,000 is shared among associated companies. Federally it shrinks when the group earned more than $50,000 of passive investment income the year before (it is gone at $150,000), or when taxable capital is over $10 million. Ontario does not apply the passive-income reduction. Keeping large investments inside the company can therefore cost access to the lower rate, which is worth watching as surplus builds up.
Year-end and filing dates
- A company chooses its fiscal year-end when it files its first return.
- The T2 return is due six months after year-end.
- Tax owing is generally due two months after year-end, or three months for a Canadian-controlled private corporation that meets certain conditions, including claiming the small business deduction.
- T4 and T5 slips for the calendar year are due by the end of February.
- A loan to a shareholder generally has to be repaid within one year after the end of the company’s tax year in which it was made, or it is included in the shareholder’s income for the year the loan was received (a deduction is available when it is later repaid).
Planning ahead
Owner-managed companies eventually face a bigger decision: sell, pass the business to family, or wind down. Each works better with time to prepare. See selling a business, estate freeze valuation, and tax planning and tax returns. If you have not incorporated yet, read incorporating in Ontario: when it makes sense. Companies doing technical development may also want to read about SR&ED and government incentives.
This page is general information, not advice for your situation. Rates and thresholds are set by the federal and Ontario governments and can change.
Related pages: audit and accounting, high net-worth individuals, Ontario accountant, and all services.
Owner-managed business questions
Should I pay myself salary or dividends?
There is no single answer. Salary is deductible to the company, creates RRSP room, and requires CPP contributions and payroll filings. Dividends are paid from after-tax profits, carry a dividend tax credit, and create no RRSP room or CPP. Many owners use a mix; the right blend depends on your income needs, retirement plans, and the company’s profits.
What is the small business deduction?
A Canadian-controlled private corporation pays a lower federal rate (9% instead of 15%) on its first $500,000 of active business income a year. The $500,000 is shared among associated companies and is reduced federally when the group’s passive investment income in the previous year is over $50,000 (it is gone at $150,000) or its taxable capital is over $10 million. Ontario also has a lower small business rate, 2.2% from July 1, 2026 (3.2% before), prorated for tax years spanning that date; Ontario does not apply the passive-income reduction.
Can I pay family members from the company?
Yes, but the tax on split income (TOSI) rules, expanded in 2018, can tax dividends and certain other amounts paid to family members at the top personal rate unless an exclusion applies. Exclusions include a family member aged 18 or older who is actively engaged in the business in the current year or any five earlier years, for example working an average of at least 20 hours a week, certain shareholders aged 25 or older who own at least 10% of the votes and value of a company that is not a professional corporation and does not earn 90% or more of its business income from services, and a spouse when the owner is 65 or older. A salary paid to a family member has to be reasonable for the work they do.
When are the company’s tax return and tax due?
The T2 corporate return is due six months after the company’s year-end. The tax balance is generally due two months after year-end, or three months for a Canadian-controlled private corporation that meets certain conditions, including claiming the small business deduction. Interest runs from the balance-due date, not the filing date.
Can I borrow from my company?
A loan from your company to you is generally included in your income for the year you received it unless it is repaid within one year after the end of the company’s tax year in which it was made, subject to limited exceptions. Repeated borrowing and repaying around year-end can also be challenged, because the one-year rule does not apply if the repayment is part of a series of loans and repayments. Even a loan that is repaid in time can create a taxable benefit if you pay less interest than the CRA prescribed rate. It is worth planning how to take money out before you do it.
Should I incorporate at all?
It depends on your income, how much you leave in the business, and your costs. See the article on incorporating in Ontario on this site for a plain-language look at the trade-offs.
Complimentary discussion
Bringing last year’s financial statements and corporate tax return makes the first conversation more useful.