Canada: 2016 Year-End Tax Planning Guide

Last Updated: November 16 2016
Article by Grant Thornton

Nobody likes to pay too much tax. Luckily, there are a number of tax-saving measures that can help with just that—both for businesses and individuals. But, in order to capitalize on these opportunities, now's the time to review your 2016 tax situation to see if any apply to you.

Salary, bonus or dividends? What's the right compensation strategy for you?

If you're the owner-manager of a closely held Canadian-controlled private corporation (CCPC), you should consider the mix of salary, bonus and dividends in your compensation package. A bonus is often preferred over salary, since the payment can be deferred until after the company's year-end. Salary and bonus are both considered earned income which is used to calculate your RRSP contribution limit for the subsequent year. For 2016, you will need earned income of $144,500 to make the maximum RRSP contribution for the 2017 tax year of $26,010.

If your spouse and/or children work for you, consider paying them a reasonable salary or bonus as well. This will be beneficial where their marginal tax rate is lower than yours. In addition, it will give them earned income for CPP and RRSP purposes.

Owner-managers of private corporations often declare a bonus at year-end to reduce the corporation's income to the amount that qualifies for the small business deduction. However, a corporation can also pay dividends to its shareholders. Certain dividends qualify as "eligible dividends," which are subject to a lower rate of tax than other (regular) dividends.

For a dividend to be an eligible dividend, it must be designated as such in writing by the corporation paying the dividend. Late-filed designations may be permitted in certain limited situations, provided that the corporation makes the designation no later than three years following the day on which the dividend was paid. Consult with your tax advisor if you want to make a late-filed eligible dividend designation.

Watch your company's taxable capital—aim to maximize the small business deduction.

The first $500,000 of federal active business income of CCPCs receives preferential tax treatment by qualifying for the small business deduction. This deduction begins to be phased out where a corporation's taxable capital (on an associated corporation basis) for the prior taxation year exceeds $10 million and is completely eliminated if it exceeds $15 million. In general, the taxable capital of a corporation is equal to its retained earnings, share capital and long-term debt. As a result, the small business deduction may be reduced for corporations with a significant amount of debt financing.

The taxable capital of a corporation is determined at its year-end. If your company's taxable capital is likely to exceed $10 million, there are strategies available to reduce this amount.

Have you borrowed funds from your corporation?

In general, to avoid tax consequences, debts you owe to your corporation have to be repaid within one year following the end of the corporation's taxation year during which the loan or advance was made to you. However, there are exceptions to this rule. If you have borrowed an amount from your corporation, you should review the tax consequences with your Grant Thornton tax advisor.

Acquiring and disposing ofassets— understand the tax implications.

If you are planning to purchase an asset, you should generally acquire it before the end of your fiscal year. However, to benefit from a tax deduction, the asset must be "available for use." On the other hand, the disposal of assets that have appreciated in value can create significant income tax liabilities. Although it's generally recommended that you dispose of an asset at the beginning of the next fiscal period, there may be options available to defer or reduce the potential tax liability on the sale of a significant capital asset.

New rules limiting multiplication of the small business deduction (SBD)

Effective for taxation years beginning after March 21, 2016, new rules have effectively put a stop to certain partnerships and corporate structures that multiply access to the SBD. Professionals providing services through a corporation have been especially impacted by these changes. If you have implemented a structure using one or more corporations and/or partnership to access the SBD, you should consult with your tax advisor to determine your best course of action going forward. This can include maintaining the existing structure, dissolving the structure or looking at alternative structures. The option that's right for you will depend on your particular situation.

Consider planning options where your business has significant eligible capital property (ECP).

Effective January 1, 2017, the existing eligible capital property (ECP) regime will be repealed and replaced with a new capital cost allowance (CCA) class for depreciable capital property. Some of the more common examples of ECP include goodwill, customer lists, trademarks, franchise rights, farm quotas and some patents (generally, intangible assets of a business).

Under the current rules, if the value of your CCPC is derived mainly from ECP (e.g., goodwill), and you have no immediate need for the sale proceeds, a significant tax deferral can be realized if the business is sold before the end of 2016.

However, under the new rules, the disposition of such property will be taxed as investment income, which is subject to an additional tax (that is not refunded to the corporation until taxable dividends are paid out to the shareholders). If your business has significant internally-generated goodwill, or accrued gains on other ECP, you should contact your tax advisor to discuss the planning alternatives. If the business cannot be sold before December, 31, 2016, one option would be to realize the accrued gain through an internal reorganization prior to the end of 2016.

Non-taxable gifts for employees— understand the rules.

If you want to give your employees a non-taxable holiday gift, the CRA's current position on what qualifies for tax-free status is as follows:

  • Non-cash gifts and non-cash awards to an arm's-length employee, regardless of number, will not be taxable to the extent that the total aggregate value of all non-cash gifts and awards to that employee is less than $500 annually. The total value in excess of $500 annually will be taxable.
  • In addition to the above, a separate non-cash long-service/anniversary award may also qualify for non-taxable status to the extent its total value is $500 or less. The value in excess of $500 will be taxable. To qualify, the anniversary award cannot be for less than five years of service, and it must be five years since the employee last received a long-service award.
  • Items of an immaterial or nominal value, such as coffee, tea, t-shirts with employer logos, mugs, plaques, trophies, etc., will not be considered a taxable benefit to employees and will not be included in the above $500 threshold.

Although such gifts/awards may not be taxable to your employees, the amount paid can still be deducted as a business expense. Note that gift cards are considered equivalent to cash and do not qualify for tax-free status under these rules. Performance-related rewards (for example, for meeting a sales target) and cash and near-cash awards (such as gift certificates) will continue to fall outside the administrative policy and will be taxable to the employee. Also, similar to the previous policy, all gifts and awards to non-arm's-length employees will be taxable.

Within this guide, you'll find that many of these tax-saving measures require implementation before the end of the year or early in 2017. After you've had a chance to review this guide, contact your Grant Thornton advisor to help you implement the measures that apply.

To view the full article please click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions