Estate
Canada has no estate tax. So why do families lose three quarters of it?
There is no estate tax and no gift tax here. The bill arrives from two other places instead, and on a lot of files from a third.
Corporate structure
There are four ways out of your corporation. Which one were you shown?
The cash has to leave by one of those doors, and the spread between the widest and the narrowest is the whole of it.
There is cash in the corporation. More than there needs to be. It has been building for a few years, and taking it out feels expensive, so it sits.
You have asked about it. Probably at year end, in the ten minutes after the return was signed, and the answer was that it depends. Which was true. It was not an answer.
Nobody has done anything wrong here. The decision keeps getting deferred, and deferred decisions have a habit of being made for you eventually. Usually by a sale or a death, at whatever rate happens to be available that day.
What it comes to
53.50% to nil
The spread between the widest door and the narrowest
BC 2026 combined top rates. Salary or bonus is taxed in your hands at up to 53.50%. A capital dividend from a funded capital dividend account is nil. Same dollar, same company, four ways out.
Why does everybody get shown the same two?
Most incorporated professionals have been shown two. Salary, because payroll already exists. Dividends, because somebody once said dividends were better.
Salary or bonus is taxed in your hands at up to 53.50% in BC. It is deductible to the company, it creates RRSP room, which the others do not, and it attracts CPP. A non-eligible dividend runs up to 48.89% at the top, with no RRSP room, no CPP, and no deduction for the company.
An eligible dividend is up to 36.54%, if the company has the general rate income pool to pay one. Most professional corporations paying tax at the small business rate do not, which is exactly why that door is narrower than it looks.
36.54%
Eligible dividend, BC 2026 top combined rate
It needs a general rate income pool behind it, and a corporation paying at the small business rate is usually not building one. The rate is real. The access to it often is not.
What is your capital dividend account balance today?
Most people have never been asked. A fair number of accountants have to go and look.
The capital dividend account is not a bank account. It is a notional tally the CRA keeps of amounts your corporation received that were never taxable. The non-taxable half of a capital gain goes in. So does the death benefit of a corporately-owned life insurance policy, less the policy's adjusted cost basis.
Whatever is in that tally can be paid to shareholders as a capital dividend, received without tax in their hands. That is not a loophole and it is not clever planning. It is the tax system acknowledging that money which was never taxable inside the company should not become taxable on the way out.
You have to know the account exists, you have to have put something in it, and the election has to be filed properly and on time. Most of the corporations we look at have a balance of zero. Not because they should, but because nobody was tracking it.
What is the cash costing you while it waits?
Investment income earned inside a Canadian-controlled private corporation is taxed at around 50.67% in BC. Part of that is refundable when dividends are paid, so the headline overstates the real cost. It is still an unfriendly rate to be earning at.
Then the second thing, which is quieter. Passive investment income above $50,000 a year starts grinding down the company's access to the small business rate on its active income. Five dollars of the business limit for every dollar over the threshold, and at $150,000 of passive income the limit is gone entirely.
So the pile is not only sitting there being taxed inefficiently. It can raise the tax on the work you are actually doing this year, and it does it without appearing anywhere you would look.
50.67%
BC 2026 combined rate on investment income inside a CCPC
Part of it is refundable once dividends are paid. The grind on the small business limit is not refundable, and it lands on the active income you are still working for.
What happens to all of it if you died tomorrow?
The shares are deemed disposed of at fair market value. Nothing is sold and nobody receives anything, and the accrued gain is taxed on your final return anyway.
The RRSP or the RRIF is added to income on that same return. Property that is not your principal residence is taxed on the gain.
Canada does not have an estate tax, which people find reassuring right up until they see the final return. That number exists today. It can be worked out from returns you have already filed, and almost nobody has been shown theirs.
This is the same question from the other end. Which door the money leaves by gets decided either by you, now, or by the terminal return, later, and the terminal return is not negotiating.
The arithmetic
| The door | Top combined rate |
|---|---|
| Salary or bonus, taxed in your hands | 53.50% |
| Non-eligible dividend | 48.89% |
| Eligible dividend, where there is a general rate income pool | 36.54% |
| Capital dividend from a funded capital dividend account | Nil |
| Salary is the only one of them that creates RRSP room, and the only one that attracts CPP. Your actual marginal rate is almost certainly below the top one. Alberta and Ontario differ. | |
This week
None of them needs us, and none of them needs an appointment.
What to go and check, and none of it costs anything
When this is not your problem
Sometimes the answer is that your structure is already doing what it should, and the right advice is to leave it alone. That happens more often than people expect. If the retained earnings are modest, the money is coming out as salary because you want the RRSP room, and there was never going to be a capital dividend account balance to speak of, then there are four doors and you are already using the right one. We would rather say that in fifteen minutes than take six meetings to arrive at it.
Is this one actually happening on your file?
Fifteen minutes on the phone is usually enough to tell. You describe the structure, we ask questions, and nothing is presented at you. There is nothing to send in advance and nothing arrives afterwards unless you ask for it.
Book fifteen minutesNo pitch on the first call. If there is nothing worth fixing, we will tell you that.
Read next
Business owners
If your co-owner dies tonight, who owns their half tomorrow?
The shares do not evaporate. They go somewhere, and if nothing was written down they go to an estate.
The article
Same money, four ways out of your corporation
Most incorporated professionals think about how much is in there. The more useful question is which door it leaves by.
Sources and cautions
Verify before relying on any of this. BC 2026 combined top rates: salary and bonus 53.50% on income over roughly $265,545, non-eligible dividend 48.89%, eligible dividend 36.54%, small business corporate 11%, general corporate 27%, CCPC passive investment income 50.67%. Rates and thresholds index and change every year, so confirm the current figures before acting. Your actual marginal rate is almost certainly below the top one. Eligible dividends require sufficient general rate income pool. Capital dividend account treatment depends on the policy's adjusted cost basis and on the election being filed correctly, and a portion of a corporately-owned death benefit may not be creditable. The $50,000 passive income threshold, the five-dollar grind and the $150,000 point come from our own advanced planning material. Refundable dividend tax on hand, income splitting rules and the lifetime capital gains exemption all affect the real numbers and none of them are modelled here. General information, not tax advice. Talk to your own accountant about your own return. Prabhjit Virk is not a Canadian CPA. Life insurance licences are held in British Columbia, Alberta and Ontario; Quebec is pending. Provincial rates and rules quoted here are British Columbia figures unless stated. Alberta and Ontario differ.