At a glance
Effective year-end tax planning can significantly reduce costs and improve your business’s financial position for 2025 and beyond. This article highlights five key strategies: timing asset purchases and sales, leveraging SR&ED program enhancements, using clean technology tax credits, optimizing family remuneration, and maximizing the small business deduction. Implementing these measures early can help you minimize tax liabilities and strengthen long-term growth.
Plan the timing of depreciable asset purchases and sales
As long as eligible assets are acquired and in use before your fiscal year end, you can claim capital cost allowance (CCA) to reduce your business's income in this fiscal year. The benefit of timing your depreciable asset acquisitions is greater due to the temporary measures that allow for the full write-off or enhanced first-year CCA on eligible property, as follows:
The 2024 federal budget announced an enhanced first-year CCA rate at 100% for additions of property in of the following classes, if the property is acquired on or after April 16, 2024, and becomes available for use before 2027:
- Class 44 - patents or the rights to use patented information for a limited or unlimited period
- Class 46 - data network infrastructure equipment and related systems software
- Class 50 - general-purpose electronic data-processing equipment and systems software
The 2024 fall economic statement proposes to provide immediate expensing (i.e., first-year CCA rate of 100%) for qualifying property in the following classes, if acquired on or after January 1, 2025, and available for use before 2030:
- Class 43.1 (and 43.2) - clean energy generation and energy conservation equipment
- Class 53 - manufacturing and processing machinery and equipment
- Classes 54, 55, and 56 - zero-emission vehicles
Phasing out will begin in 2030 and fully eliminated for property that becomes available for use after 2033.
The 2024 fall economic statement also proposes to reinstate the accelerated investment incentive property (AIIP) rules to provide enhanced first-year CCA for eligible property acquired on or after January 1, 2025, and available for use before 2030. Phasing out would begin in 2030 and fully eliminated for property that becomes available for use after 2033.
The AIIP rules would be beneficial for capital property acquisitions that would not otherwise be eligible for full expensing under the other measures.
Note that legislation to enact the above temporary measures has not passed into law at the time of writing. A BDO tax advisor can help you stay on top of legislative developments and ensure your tax returns are filed appropriately.
Understand the enhancements to the Scientific Research and Experimental Development (SR&ED) tax incentive program
Significant enhancements have been proposed to the SR&ED program effective for tax years beginning on or after December 16, 2024. Of particular interest to Canadian-controlled private corporations (CCPCs) are three key proposals:
- Increase the annual expenditure limit on which CCPCs are entitled to earn an enhanced investment tax credit (ITC) from $3 million expenditure limit to $6 million as announced in the 2025 federal budget.
- Increase the prior-year taxable capital phase-out range for the enhanced ITC for CCPCs to $15 million to $75 million (from the current $10 million to $50 million range).
- Re-introduce the eligibility of capital expenditures for both the deduction against income and SR&ED ITC (in respect of property acquired or lease costs that first become payable on or after December 16, 2024).
The improvements to the SR&ED program are significant. For more details on these proposals, read our article, SR&ED program enhancements and updates: Draft legislation released as well as our review of business tax measures from the 2025 federal budget.
Consider the clean technology ITCs
The government has introduced a suite of clean economy ITCs to help businesses adopt sustainable technologies, including:
These ITCs offer substantial benefits for many businesses— from investments in clean energy such as solar panels, heat pumps or zero-emission industrial vehicles to larger investments by manufacturers and others who are investing in ways to make industrial processes greener. To understand how these new ITCs can benefit your business, refer to our dedicated webpage on Clean Economy Investment Tax Credits.
Pay your family wisely
As a private business owner, you likely know the value of revisiting your family business remuneration strategy at least annually. In determining the best mix of salaries and dividends for you and your family members, consider factors such as everyone’s individual marginal tax rate and need for cash, as well as the corporation's tax rate and the benefits of tax deferral.
For a summary of tax rates, refer to our Tax Facts 2025 publication.
The tax on split income (TOSI) rules restrict the use of a private corporation to split income with family members. They do this by applying a high tax rate to certain types of income—in particular, dividends paid from private corporations. When these rules apply, they eliminate the benefit of income splitting.
However, there are situations where you can still split income in a tax-efficient manner with family members. The TOSI rules are complex and working with an experienced BDO tax advisor can help to determine an optimal remuneration strategy.
The TOSI rules don't apply to wages paid for actual work performed. If your spouse or children work for your business, consider paying them salaries for their work in 2025—remembering that salaries must be reasonable and commensurate with the services performed. A good guideline is to pay them what you would have paid a third party and to maintain adequate documentation to support such payments.
It is important to remember that payment of salaries and bonuses accrued in your 2025 fiscal year must be made within 179 days of your business's year end for the amounts to be deductible in the current fiscal year. For the fiscal year ending between July 6, 2025, and Dec. 31, 2025, a bonus for the 2025 fiscal year can be paid in 2026 (but within 179 days of the 2025 fiscal year end). This means that your business will get a deduction in the 2025 fiscal year, but your family members won't be taxed on their salaries until 2026.
Whenever you pay salaries to your spouse or children, ensure that withholdings for income tax, Canada/Quebec pension plan, employment insurance/Quebec parental insurance rates (where an exemption is not available), and any applicable provincial payroll taxes are remitted as required.
Where the remuneration is paid in 2025, the remuneration and related withholdings must be reported on T4 slips for 2025, which are due on or before Feb. 28, 2026. The equivalent form to the T4 slip in Quebec is the RL-1 slip, which is also due on or before Feb. 28, 2026.
Take stock of the small business deduction
The small business deduction (SBD) reduces the corporate tax rate for qualifying businesses creating a greater tax deferral than business income taxed at the general corporate rate. For 2025, the average combined corporate tax rate on income up to the small business limit is 12.2% or less in all jurisdictions—at least 12% points lower than the general corporate tax rates and as much as 20.5% points lower depending on your jurisdiction. This allows for a significant tax deferral where active business income is retained in the company. As such, the SBD is one of the most common tax advantages available to CCPCs.
The small business limit is currently $500,000 federally in all provinces and territories except for Saskatchewan (where the limit is $600,000), Nova Scotia (where the limit increased to $700,000 effective April 1, 2025) and Prince Edward Island (where the limit increased to $600,000 effective July 1, 2025). This business limit must be shared amongst corporations associated in a taxation year.
CCPCs that earned investment income over a $50,000 threshold in the previous year are generally subject to a reduction in the amount of SBD that can be claimed for the current year. Specifically, the small business limit is reduced by $5 for every $1 of adjusted aggregate investment income (AAII) above the $50,000 threshold. Under this formula, the SBD will be eliminated when AAII reaches $150,000 in a given taxation year. Note that investment income is aggregated for all associated corporations for purposes of this threshold.
Generally, AAII includes investment income such as interest, rent, royalties, portfolio dividends, dividends from foreign corporations that are not foreign affiliates, and taxable capital gains in excess of current-year allowable capital losses from the disposition of passive investments.
Because the SBD restriction is based on AAII earned in the previous year, annual planning may make sense in situations where the amount of AAII changes from year to year so that the following year's SBD can be managed.
There are strategies to reduce investment income within your corporation while retaining investment funds within the company (as withdrawing the funds from the company will be taxable to you). Keep in mind that any such action to reduce investment income must make sense from an overall investment perspective and not just with a view to tax minimization.
Track related expenses
Since AAII is calculated net of expenses, it might make sense to consider the related expenses that were incurred to earn investment income. For example, interest expense, investment counsel fees, and a salary paid to the owner-manager incurred to earn investment income could reduce AAII, as long as the amounts incurred are reasonable.
Adjust your investment mix
You could adjust the investment portfolio in your company to be more tax efficient. One way to achieve this might be to hold more equity investments within your corporation rather than fixed-income investments. This would be helpful because only 50% of the gains realized on the sale of shares would be taxable, whereas investment income earned on bonds is fully taxable. This means that only 50% of the gain on the sale of equities is included in AAII compared to 100% of the income earned on fixed-income investments.
Consider alternative ways to invest
As an alternative, you could consider investing excess funds in an exempt life insurance policy, because the investment income earned is not included in AAII. Owning life insurance inside a corporation offers several other key tax benefits. Corporations generally pay lower tax rates than individuals, so the cost to fund policy premiums will be lower if paid by the corporation rather than personally. Business owners also benefit from tax-deferred growth in the value of investments in an exempt permanent life policy held within the company until disposition, allowing wealth to accumulate more efficiently inside the company. Upon death, the life insurance proceeds over the cost basis of the policy can be paid as a tax-free capital dividend. However, there are also potential disadvantages of owning life insurance in a corporation. Your BDO tax advisor can assist you in making a determination of whether this would be beneficial.
Another attractive retirement savings option for owners of incorporated businesses is the individual pension plan (IPP) as the passive investment rules don't apply. An IPP is a defined benefit pension plan where the benefits are set by reference to your salary, and contributions are made to build sufficient capital to fund a defined pension benefit. The contributions made by your company are tax deductible, and the investments inside the plan grow on a tax-deferred basis.
For eligible individuals, the use of an IPP can allow for greater contributions (which generally grow with age) when compared to a registered retirement savings plan (RRSP). Over time, the use of an IPP can produce substantial tax advantages over an RRSP. Additional benefits of an IPP may include the ability to make up for poor investment performance and higher retirement benefits.
BDO can help you improve your tax planning strategies
If you think that your business could benefit from any of these strategies, contact your local BDO office today. A trusted BDO advisor would be happy to assist you with your business's year-end planning. We’re here to help.
The information in this publication is current as of October 3, 2025.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.