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Tax Planning for Business Owners in Ottawa
If you run an Ontario corporation as a consultant, contractor or professional, your biggest tax decisions are made before any return is filed: how you pay yourself, when, and how much profit stays in the company. BBA Tax provides tax planning for business owners built on the 2026 rules, including Ontario’s lower small business rate, and on your personal goals. You get a salary, dividend and year-end plan while there is still time to act on it.
How We Help Owner-Managers
Salary is a deductible expense for the company and creates RRSP room, but it costs CPP contributions on both sides. Dividends need no payroll and carry no CPP, yet they are paid from after-tax profit and create no RRSP room. We model the mix, then run the salary and issue the T5 slips.
A few months before your corporation’s year-end, we review profit, planned purchases and owner pay. A bonus accrued at year-end is generally deductible that year only if it is paid within 180 days after year-end. We then prepare the T2, which is due six months after year-end, with any balance owing due sooner.
A holding company can own your operating company’s shares and keep surplus cash or investments separate from business risk. It does not get around the passive income limit, because the investment income of associated corporations is added together. We look at whether a holdco suits your plans, then handle the incorporation.
Personal costs the company pays, or cash you take that isn’t salary or a dividend, build up in your shareholder loan account. A loan not repaid within one year after the end of the corporation’s tax year in which it was made is generally added to your income. We track the balance before that deadline.
Dividends paid to a spouse or adult children are often caught by the tax on split income (TOSI) and taxed at the top rate. Exceptions include relatives who work in the business at least 20 hours a week on average. TOSI does not apply to salary, but pay must be reasonable for the work done.
Planning Before the Year Closes
Planning only works before income is locked in: before your corporation’s year-end, and before December 31 for your personal return. We start with your books, your year-end date and what you need to live on, then compare salary, dividends and a mix using current federal and Ontario rates. For a quick first look, try our salary vs dividend calculator for Ontario.
From there, we agree on a pay schedule for the year, decide how much profit to leave in the company, and line up deadlines such as March 1, 2027 for 2026 T4 and T5 slips. When the rules move, as Ontario’s small business rate did on July 1, 2026, we revisit the plan instead of waiting for tax season.
Year-Round Tax Planning for Business Owners
Advice is easier to follow when the same team carries it out. We can keep your books in QuickBooks, run your owner payroll, issue T5 slips for dividends, and prepare both the corporate T2 and your personal return, so each decision shows up consistently. For consultants who work much like an employee of one client, we also review personal services business risk, since a corporation in that position cannot claim the small business deduction on that income.
Why Owner-Managers Need a Plan Every Year
A corporation lets you choose when to take income, in what form, and how much to leave invested. Those choices depend on rules that changed in 2026 and change again in 2027, so last year’s approach may no longer fit. These four points matter most for Ontario owner-managers right now.
Ontario’s Small Business Rate Cut
Ontario’s small business rate fell from 3.2% to 2.2% on July 1, 2026. For a Canadian-controlled private corporation, the combined federal and Ontario rate on active business income up to the $500,000 business limit is now 11.2%, down from 12.2%. Tax years that straddle July 1 are prorated by days, so a December 31, 2026 year-end works out to about 11.7%.
Dividend Credit Changes for 2027
To align with the lower corporate rate, Ontario’s dividend tax credit on non-eligible dividends, the kind usually paid from income taxed at the small business rate, is scheduled to fall from 2.9863% to 1.9863% of the grossed-up amount on January 1, 2027. Non-eligible dividends received from 2027 on will carry more Ontario tax, so dividend timing is a 2026 decision.
Passive Income Limits
Once the adjusted aggregate investment income of your corporation and its associated corporations passes $50,000, the next year’s federal small business limit shrinks by $5 for every $1 over, reaching zero at $150,000. Ontario does not apply this reduction, so a company can lose the federal small business rate on active income and still keep Ontario’s.
Selling Your Company’s Shares
In 2026, the lifetime capital gains exemption can shelter up to $1,275,000 of gains on qualified small business corporation shares. Among other conditions, 90% or more of the company’s assets must be used mainly in an active business in Canada when you sell, and more than 50% throughout the prior 24 months. Surplus cash and investments can make the shares fail these tests.
Corporate and Personal Filing for Owner-Managers
A plan only holds if the filings match it. Your corporation’s T2 is due six months after its year-end, and any balance owing is generally due two months after year-end, or three months for qualifying Canadian-controlled private corporations that claim the small business deduction. We help with:
T2 returns that apply the prorated 2026 Ontario rate
T4 and T5 slips for owner salary and dividends
Personal returns, including RRSP claims and TOSI where it applies
Why Owner-Managers Work With BBA Tax
Good planning needs real numbers. Karim Bitar, our Lead Accountant and an ELITE Certified QuickBooks ProAdvisor, works from your actual books, payroll records and past returns rather than rough estimates, so the salary, dividend and year-end steps we recommend can be carried through to your filings.
Ottawa clients can meet us in person at our Westboro office on Richmond Road, and owners elsewhere in Canada work with us remotely. Corporate T2 returns start from $1,000, and bundling services saves 10% to 25%. Book a free intro call to talk through your corporation and what you want from it.
What We Review Each Year
We go through these items with you every year, ideally a few months before your corporation’s year-end.
Salary, bonus and dividend mix
Shareholder loan account balance
Passive income and holdco structure
Family pay and TOSI exposure
RRSP room created by salary
Owner-Manager Tax FAQ
Should I pay myself salary or dividends in Ontario?
It depends on how much you need personally, whether you want RRSP room and CPP, and the rate your corporation pays. Salary is deductible to the company and counts as earned income for RRSP purposes, but both you and the company pay CPP. Dividends avoid CPP and payroll, but they are paid from after-tax profit and create no RRSP room. A mix of both is worth modelling each year, especially with Ontario’s dividend tax credit changing in 2027.
What is Ontario's small business tax rate in 2026?
Ontario’s small business rate is 2.2% from July 1, 2026, down from 3.2%. Added to the 9% federal rate, active business income eligible for the small business deduction is taxed at a combined 11.2%, compared with 12.2% before July 1. Tax years that straddle July 1, 2026 prorate the two Ontario rates by days. Income above the small business limit is taxed at the general combined rate of 26.5%.
How much salary do I need to maximize my RRSP?
RRSP room is 18% of your previous year’s earned income, up to the annual dollar limit, minus any pension adjustment. The limit is $33,810 for 2026 and $35,390 for 2027, so about $196,611 of earned income in 2026 gives the maximum room for 2027. Salary counts as earned income; dividends do not.
What happens if I don't repay my shareholder loan?
If a loan from your corporation is not repaid within one year after the end of the corporation’s tax year in which it was made, it is generally included in your personal income. Repayments that are part of a series of loans and repayments don’t count. Even before then, an interest-free loan can create a taxable benefit at the CRA’s prescribed rate, which is 3% from October to December 2026.
Guides for Incorporated Owners
Go deeper with these guides from the BBA Tax blog:
- How to Pay Yourself as a Small Business Owner in Canada?
- Holding Company in Canada: Should Your Ottawa Business Set One Up in 2026?
- Lifetime Capital Gains Exemption 2026: How to Shelter $1.275 Million When You Sell Your Business
- Personal Services Business Rules in 2026: Is Your Ottawa Consulting Corporation at Risk?
- Year-End Tax Planning Strategies for Canadian Business Owners
Success Stories
I'm an ELITE Certified QuickBooks ProAdvisor
Business owners regularly face issues with bookkeeping & this is where a ProAdvisor can help! Using my skills & experience, I can help you organize your books & even bring you back up to date if required. Let’s build up your books in order to provide you with the most up to date, reliable and accurate information about your company!
