2025 Year-end Tax Planning Tips - Corporations

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2025 Tax Updates

CCPC (Canadian Controlled Private Corporation) tax rates:

• CCPC small business tax rate: remained at 12.2% in 2025 (combined Federal and Ontario, for taxable active business income up to $500,000, payable 3 months after the fiscal year-end, otherwise 2 months after the fiscal year end).

• CCPC passive income tax rate: remained at 50.17% in 2025. Refundable portion remained at 30.67%. Note: Any CCPC passive income above $50,000 will grind down its small business limit at a 5 times rate (limited to federal tax only, not for Ontario SBD). Contact us for strategies to minimize.

• Refundable Part IV tax rate and dividend refund rate: on taxable dividends paid by a corporation remained at 38.33% in 2025. Note: The dividend refund is now split into a complex eligible and non-eligible RDTOH regime. In 2025 Budget proposal, the refund of tax to an affiliated payor corporation is suspended until the portion of the dividend received is ultimately paid to an individual shareholder.

Other updates:

• Capital gains inclusion rate: Remained at ½. The 2024 Budget increase from ½ to ⅔, for capital gains realized after June 24, 2024, is no longer in effect.

• Substantive CCPCs: A private corporation in Canada that is not a CCPC but is controlled directly or indirectly by a Canadian resident individual, is considered a “substantive CCPC” and taxed at the CCPC rate for investment income.

• Canada Carbon Rebate for CCPC: The 2025 Budget proposal confirms the government’s intention for the Canada Carbon Rebate to be tax-free. Ensure to file your corporate tax returns.

• Immediate expensing for manufacturing and processing buildings: 2025 Budget proposes to provide temporary immediate expensing for the cost of eligible M&P buildings, including the cost of eligible additions or alterations made to such buildings. The enhanced allowance would provide a 100 percent deduction in the first taxation year that eligible property is used for M&P before 2030.

• Canada Emergency Business Account (CEBA): any CEBA loan balance would have been converted to a three-year term loan with 5% interest rate and must be fully paid by December 31, 2026.

• Beneficial ownership registries: Already a requirement for federally incorporated companies in 2024. Provincial requirements for privately-held companies to maintain ownership registries proposed in Ontario. Ontario corporations must file an annual return via the Ontario Corporate Registry.

Small Business Owners

Owner-manager remunerations:

• Preferred salary/dividends mix: Determine the preferred mix of salary and dividends for you and your family members for 2025 with consideration for the TOSI rules. Discuss with us for optimal dividend for family members, if meeting the requirements for excluded business or excluded shares.

  • Consider paying a reasonable salary instead, especially for a personal taxable income below $55,000, with proper support to justify the pay.

  • Paying enough taxable dividend to receive all the RDTOH refund inside the company.

  • Salary will be more favored in 2025 owing to the new AMT regime.

• Bonus accruals at year end must be paid within 179 days after the corporate year end, including appropriate source deductions and payroll taxes to be remitted on time.

• Tax-effective dividends: Make tax-effective dividends such as non-taxable capital dividend before a capital loss is triggered.

• Preserve cash in the corporation in times of economic uncertainty.

Year-end tips:

• Purchase eligible zero-emission vehicles and take advantage of an enhanced write-off (i.e. a 75% CCA deduction) available for purchases after March 18, 2019, subject to a gradual phase-out: 2024-2025 is 75%, and 2026-2028 is 55%.

• Purchase capital asset for CCA class 44, 46 and 50: Class 50 includes computer equipment and related system software. Take advantage of an immediate write-off (i.e. 100% CCA) before 2027.

• Claim a business reserve to defer tax on related profits by claiming a reserve on unpaid amount over a maximum of three years, if you sold goods or real property inventory in 2025 and proceeds are payable after the end of the year.

• Claim a capital gains reserve: if you receive proceeds that include debt – over a maximum of four years (resulting in the capital gain being included in income over a maximum five years).

• Shareholder loans to your corporation – Determine whether your corporation would benefit from deductible interest on shareholder loans made to the corporation, rather than additional salary or bonus payments that may be subject to payroll taxes.

• Repay shareholder loans from your corporation on later than the end of the tax year after the one in which the amount was borrowed.

• Use of private health services plan (PHSP) premiums instead of non-deductible medical expense, but careful where the sole shareholder is the sole employee.

• Buy company owned life insurance policy to utilize corporate retained earnings and defer passive income.

• Track motor vehicle use for business: maintain a logbook of mileage (including date, destinations, distance KMs, and purpose). Try to increase the business mileage to greater than 50% to reduce the standby charges of a company car.

• Apply for SR&ED tax incentives: CCPC may have the ability to access the enhanced (and refundable) 35% SR&ED ITC. Ensure claims in respect of eligible SR&ED expenditures or ITCs are filed by the deadline (within 18 months after the year-end).

• Taxable capital: If your CCPC’s taxable capital for federal tax purposes in 2024 exceeds $10 million, together with all associated companies, it will start losing access to the small business deduction and the enhanced 35% SR&ED ITC rate in 2025 (with access lost entirely once taxable capital exceeds $50 million). Monitor your taxable capital and discuss with us for ways to reduce taxable capital before your company’s year end.

• Create a company stock options plan: To potentially obtain a 50% income deduction (note the new restrictions to $200,000 is for public companies only, not impacting CCPC).

• Lifetime capital gains exemption (LCGE): Organize the business so that corporate shares become or remain eligible for the $1,250,000 (indexed) lifetime capital gains exemption (LCGE), which is available to all individuals. Discuss with a tax specialist for the complexities, including estate freeze and intergenerational transfers.

Corporate matters:

• Income from property: may be eligible for small business rate if CCPC has more than five full-time employees.

• Mandatory e-filing of corporate income tax return – to avoid penalties – even if it is a nil return.

• CRA My Business Account: Ensure to access and frequently monitor your CRA My Business Account because CRA is no longer sending letters in paper, rather send electronically.

• PSB Issue: Be mindful of personal services business (PSB), tax rate is at 44.5% in 2025. See our website: https://www.impactcpas.ca/post/tax-implications-for-employee-vs-self-employed and discuss with us.

• QST/PST registration：If your business makes digital and certain other supplies to “specified Quebec consumers”, even if it is not resident in Quebec and has no physical establishment in the province, consider whether it is required to register under the simplified QST regime (threshold $30,000). Similar requirement exists in BC as well for its PST registration with a threshold at $10,000.

©2025 IMPACT CPA LLP, an Ontario limited liability partnership. All rights reserved.

The content of this pamphlet is prepared by IMPACT CPA LLP for information only and are not intended to provide professional advice as individual situations will differ. We would be pleased to discuss your specific situation and tailor a tax plan to meet your requirements.