2024 year-end tax planning for you and your business

If you have multiple corporations, you might find that one corporation has income while another has losses. In this case, there are certain strategies you can implement to utilize those losses. As these strategies can be complex and have many other considerations, it’s important to reach out to your advisor to help assess their benefit and viability. 

• Using intercompany loans – It may be possible to loan funds from the corporation with losses to another corporation with income. This loan would generate interest income for the creditor corporation and ultimately allow it to utilize its losses.
• Transferring a property with unrealized gains – If one corporation intends to sell an asset with an accrued gain, it may be possible to transfer that asset on a tax-deferred basis to the corporation with losses prior to the eventual sale of the property. This would allow the corporation with losses to use them against the gain on the sale of the property.
• Merging the corporations – Where one corporation is expected to be profitable while the other realizes losses, merging the corporations could be an effective way to utilize the losses. By amalgamating, the losses of one corporation can be used to offset the income of the other, subject to certain restrictions.  

Year-end is a great time to revisit your estate plan. When an individual dies, they’re deemed to dispose of their property at fair market value, which can result in a significant tax bill. If not planned for properly, this can greatly reduce the wealth passed to future generations. An advisor can help find tax efficient strategies to help minimize costs and ensure the final tax liability is properly funded.

2024 marked the first year that significant changes to the alternative minimum tax (AMT) rules applied. This change included an increase to the AMT rate and significant adjustments to the AMT base. If you’re subject to AMT, there are planning opportunities to consider that may minimize your AMT liability. This could include rebalancing investment portfolios or transferring your portfolio to a corporation (as corporations aren’t subject to AMT). 

If you were subject to AMT in 2024, or in previous years, you have seven years to use the AMT paid as a credit to offset your regular income tax liability (if the regular income tax exceeds AMT in these years). Otherwise, the AMT becomes a permanent tax. This situation could arise when an individual or trust doesn’t have sufficient future income that would allow them to recover the AMT. The recovery of AMT may also be unlikely where the individual’s income streams give rise to AMT liabilities in the future (i.e., capital gains or eligible dividends). 

Talk to your advisor about your future investments and income streams to assess whether recovery is possible. If not, there may be other planning opportunities available to generate taxable income, where beneficial (through RRSP withdrawals, paying yourself a salary vs. a dividend, etc.). 

If you or your business have realized capital gains in 2025 from non-registered investments, you may want to review your portfolio. If you have other investments with unrealized losses, consider selling them before the year-end to trigger capital losses. These losses can offset taxes owing on capital gains realized during the year. They can also be carried back to any of the three prior tax years to reduce prior year capital gains or can be carried forward to future years. 

As these strategies can be complex, be sure to reach out to your advisor to discuss important considerations before triggering any capital losses.

If you’re planning to sell or transfer your business soon, keep in mind the following tax measures could impact your succession plan.  

• Intergenerational business transfer rules – If you plan to sell your business to a family member, you may be eligible for an intergenerational business transfer. These rules were implemented to treat the transfer of certain shares to certain family members similarly to a third-party sale (i.e., as a capital gain instead of a taxable dividend). These rules provide two options to transfer your business to the next generation: the immediate (three year) or the gradual (five to ten year). Each transfer type has specific conditions that need to be met to qualify for capital gains treatment.
• Employee ownership trust – If you plan to make employees owners of your business, you may want to consider the use of an employee ownership trust (EOT) to take advantage of certain tax benefits. If certain conditions are met, a sale to an EOT occurring before the 2027 tax year could result in a tax exemption on up to $10 million of capital gains realized. If there are multiple owners that qualify for the exemption, the $10 million exemption must be shared in an agreed-upon manner.  

In addition, keep in mind that the lifetime capital gains exemption for 2025 is $1,250,000 which will be increased for inflation on January 1, 2026. 

Before making decisions based on any of these rules, reach out to your advisor for help with the many considerations.

The period leading up to year-end is a great time to review how you pay yourself or other family members to ensure you’re extracting funds from your business in a tax-efficient manner.

When determining your compensation from your business, consider paying yourself a salary large enough to maximize your CPP and RRSP contributions. To find  the most effective mix of dividends and salaries for you and your business, it’s important to understand how each is treated.  A business can deduct a reasonable salary payment as an expense, whereas dividends are paid from after-tax profits. As previously discussed, it’s also important to keep AMT in mind when determining the best mix of salary and dividends.

If you pay your family members salaries from your business, the salaries paid should be reasonable, reflecting what you’d pay a non-family member for the same job. If your family members receive dividends from your business, be careful that they aren’t subject to the “tax on split income” (TOSI) rules, which would trigger tax at the highest marginal tax rate.

Finally, note that bonuses accrued at year-end (regardless of whom they are payable to) must be paid within 180 days following the year-end to qualify for a deduction.

If you’ve borrowed money from your business, you should ensure the interest you’re charging yourself is reasonable. If the interest rate is below the prescribed rate set by the CRA, the difference can be treated as additional income for tax purposes.

Additionally, if you’ve borrowed money from your corporation, you should aim to repay the full amount within one year of the company’s tax year-end. If you don’t, you’ll need to report the full loan amount as income in the year it was received. For example, say you borrowed $10,000 from your company on June 1, 2025, and your corporation has a September 30 year-end. If the loan remains unpaid on September 30, 2026, you’ll have to report the $10,000 as income on your personal income tax return for the 2025 taxation year. Exceptions may be available for certain home, company stock, or car acquisitions under certain conditions. For example, where the loan is made because of your employment (and not as a shareholder) and is subject to a bona fide repayment arrangement within a reasonable term. If the loan is forgiven, that amount will be included in your income in the year it’s forgiven. Finally, as shareholder loans are non-active business assets for your corporation, it’s important they don’t threaten the Small Business Corporation or the Qualified Small Business Corporation status of your company, which could impact your ability to claim your lifetime capital gains exemption on the future sale of the company.