TL;DR: The tax you pay in the spring is decided by what you do in the fall. Once your fiscal year closes, almost every planning lever disappears and all that’s left is compliance. This post walks through the moves that only work in advance: managing the small business deduction limit, choosing between salary and dividends, timing purchases and bonuses, checking your instalments, and watching the passive income grind. If you’re doing this in March, you’re not planning. You’re filing.
Every spring, the same conversation happens in accounting offices across Ontario. A business owner looks at their corporate tax bill, winces, and asks what can be done about it. And the honest answer, most of the time, is: nothing. Not anymore.
Tax planning is a fall sport. The window between now and your year-end is when the decisions that actually change your bill get made. Miss it, and the spring conversation is just arithmetic.
Here’s what belongs on the fall checklist for an incorporated business owner in Canada.
Know where you stand before you plan anything
None of what follows works if your books are three months behind. The starting point for every planning conversation is a current, reconciled picture of the year so far and a reasonable projection of the rest.
You need two numbers before anything else: your projected active business income for the year, and your projected taxable income personally. Every decision below hangs off those two figures. If your bookkeeping can’t produce them reliably in October, that’s the first problem to fix — not because tidy books are virtuous, but because you can’t steer without them.
Watch the $500,000 small business deduction line
The small business deduction gives Canadian-controlled private corporations the lower corporate tax rate on the first $500,000 of active business income. In Ontario, the combined rate below that line is roughly half of what you pay above it.
If your projection says you’ll land near or over $500,000, that’s not bad news — it’s a planning trigger. Options that only exist before year-end include:
- Accruing a bonus to bring corporate income under the line. The bonus is deductible this year as long as it’s paid within 180 days of your year-end, which also gives you flexibility on when the personal tax hits.
- Accelerating deductible expenses you were going to incur anyway — repairs, marketing, professional fees — into the current year.
- Timing capital purchases so the capital cost allowance starts this year instead of next.
None of these are aggressive strategies. They’re timing decisions. But timing decisions expire on the last day of your fiscal year.
Salary vs. dividends: decide with a full-year view
The salary-versus-dividend question is not a one-time setup decision. It should be revisited every fall with actual numbers, because the right mix moves with your income, your spending needs, and your long-term plans.
A few of the moving parts:
- Salary creates RRSP contribution room, requires CPP contributions, and is deductible to the corporation.
- Dividends avoid CPP but build no RRSP room, and they don’t count as earned income for things like childcare expense deductions.
- Income splitting with a spouse or adult family members is heavily restricted by the tax on split income (TOSI) rules — but legitimate exceptions exist, and fall is when you confirm whether you qualify, not spring.
The wrong way to do this is to default to whatever you did last year. The right way is a 30-minute conversation in October with your actual year-to-date numbers on the table.
Check the passive income grind
If your corporation holds investments, watch the passive income line. Once passive investment income inside the corporate group passes $50,000 in a year, your $500,000 small business deduction limit starts shrinking — by $5 for every $1 of passive income above the threshold. At $150,000 of passive income, the small business deduction is gone entirely.
This catches owners by surprise because the investments feel separate from the operating business. The CRA doesn’t see it that way. If your corporate investment account had a strong year, your operating company’s tax rate might be about to go up — and the fall is when you find out and respond, whether that means realizing losses, adjusting the portfolio, or planning around a reduced limit.
Confirm your instalments match reality
A corporation that owes more than $3,000 in net tax is required to pay by instalments. Those instalments are usually based on last year’s numbers — which means if this year is meaningfully better, you’re underpaying and quietly accruing instalment interest. If this year is worse, you’re overpaying and giving the CRA an interest-free loan.
Either way, the fix is the same: compare instalments paid to a current-year projection, and adjust the remaining payments. Ten minutes of work, real money either direction.
Clean up the shareholder loan account
If you’ve been drawing money from the corporation informally through the year, those draws are sitting in your shareholder loan account. A shareholder loan that stays outstanding past the end of the following fiscal year gets included in your personal income — the full amount, taxed as if it were income, with no corporate deduction to offset it.
Fall is when you decide how to clear it: declare a dividend, run it through payroll as a bonus, or repay it. All three have different tax outcomes, and the right answer depends on the salary/dividend picture above. What you don’t want is to discover the balance in April.
Don’t forget the personal side
Corporate planning and personal planning are the same conversation. Before year-end, confirm:
- RRSP strategy — contributions can wait until 60 days after December 31, but the decision of whether salary this year should create room for next year can’t.
- TFSA room — if the corporation is retaining cash it doesn’t need, moving funds out efficiently over time beats a large forced withdrawal later.
- Charitable giving — donations must be made by December 31 to count for this calendar year, and donating publicly traded securities with accrued gains is more efficient than donating cash.
The cost of skipping the fall review
Here’s the pattern we see when this doesn’t happen: the year closes, the books get caught up in February, the return gets filed in the spring, and the owner pays a bill that could have been ten or twenty thousand dollars smaller. Not because of anything exotic — because a bonus wasn’t accrued, instalments didn’t get adjusted, a purchase landed two weeks into the new year instead of two weeks before it.
No single miss is dramatic. Together, repeated annually, they’re one of the most expensive habits in a growing business.
Frequently asked questions
When should fall tax planning actually happen?
Two to four months before your fiscal year-end. For a December 31 year-end, that means September through November. You need enough runway to act on what the numbers show — accruing a bonus or timing a purchase takes weeks, not days.
My year-end isn’t December 31. Does this still apply?
Yes — just shift the calendar. The planning window is always the final quarter of your fiscal year, whenever that falls. The personal-side items (RRSP, TFSA, donations) run on the calendar year regardless.
Is it worth accruing a bonus just to stay under the $500,000 limit?
Often, yes — but it’s a calculation, not a rule. The bonus trades corporate tax at the general rate for personal tax in your hands, and the right answer depends on your personal bracket, your cash needs, and whether the corporation needs the retained earnings. This is exactly the kind of decision that requires current numbers.
How do I know if the passive income grind affects me?
Add up the investment income — interest, rents, taxable capital gains — earned inside your corporation and any associated corporations this year. Under $50,000, you’re fine. Over it, your small business deduction limit is shrinking and it’s worth a planning conversation before year-end.
What happens if I just ignore my instalments?
The CRA charges instalment interest on the shortfall, and if the interest exceeds $1,000, a penalty can apply on top. It’s not catastrophic, but it’s entirely avoidable money.
Can’t my accountant just handle all this at tax time?
At tax time, your accountant can only report what already happened. Every strategy in this post — bonuses, purchase timing, dividend planning, instalment adjustments — has to be executed before the year closes. That’s the whole point of doing this in the fall.
If your year-end is coming and you haven’t had a planning conversation with current numbers on the table, that’s worth fixing in the next few weeks, not the next few months. At YBL, the fall review is a standing part of how we work with incorporated business owners — books current, projection built, decisions made while they still count. If you want that conversation before your window closes, reach out.