Three Things Every Small Business Owner in Canada Must Know

 Owning a small business in Canada opens the door to massive flexibility, tax efficiency, and long-term wealth - but only if you know how to use your incorporated business.

Here are three things every owner should understand to make the most of their corporation.

1. You Don’t Have to Take the Money Out — You Can Invest Inside the Corporation

If your corporation earns more money than you need to live on, you don’t have to pay it all out personally and it doesn't just have to sit in your company's bank account earning you 0.04% interest. 

Your company can invest in stocks, ETFs, GICs, permanent life insurance, or even private equity — often with fewer taxes than investing personally. In Alberta, the tax rate for qualifying small businesses - under $500,000 - is 11%. That means that 89% of your money is working for you.

Compare that to investing personally if you pulled that money out at the highest tax rate of 48%; only 52% of your money would be invested and growing.

Too many business owners treat their corporation like a pass-through account. But if you're thinking long-term, your corporation can become a powerful investment vehicle in its own right.

2. Know How Your Company Is Structured — So You Can Exit Tax-Free

Eventually, you’ll want to wind down or sell your business. The way your company is structured today will directly impact your ability to do that tax efficiently.

There is this glorious accounting and CRA 'loophole' called the Lifetime Capital Gains Exemption (LCGE) — which lets every individual shelter up to $1.25 million of capital gains tax-FREE!

Of course, there are conditions.  When you sell your business...

• It must be a Canadian-controlled private corporation (CCPC): in the interest of brevity, a Canadian company with Canadian shareholders. This doesn't work for the 'big guys'.

• 90% or more of the company’s assets must be active in a Canadian business at the time of sale. It cannot just be a holding company, there needs to be a business that you are selling (or the shares of your HoldCo, but that kind of defeats the purpose of a HoldCo - it's an article on it's own right).

• You (or a family trust) must have owned the shares for at least 24 months. No 'flips'.

If you use this right, you can save over $400,000 in taxes when you sell your business.  

3. Your Corporation and Personal Life Are Financially Connected

The way you pay yourself (dividends vs salary), how you save for retirement, and how you protect your family all flow through the corporation. Your corporation and your personal finances are linked closely.

1. Your business make's money.

2. You incur expenses at the business level

3. You have to pay yourself to pay your personal expenses - you know, the one's that you couldn't possibly sit across the table from a CRA auditor and explain as a business expense, "My son's private hockey coach is ensuring that he will get a scholarship and be able to take over my business when I retire. It is crucial to my succession planning that Colton goes D1."

How you pay yourself that money matters:

• Paying yourself a salary will allow for RRSP contribution room, CPP will go up, and it will help you qualify for a mortgage. You will also pay the highest possible tax rate for what you take out.

• A dividend is slightly better for taxes, but you get nothing added to your CPP calculations, don't get RRSP room, and the banks will treat you like a deadbeat when you're trying to borrow money.

• Owning a life insurance policy within your corporation helps you get money out of the corp without paying any tax at all.  This strategy isn't right for everyone, but for those that it does make sense for, can change the game.

A good advisor helps you connect the dots; your personal wealth plan needs to work with your business plan.

Your numbered company isn’t just a legal shell - it’s a serious wealth-building tool. Understanding how to invest inside it, exit smartly, and coordinate it with your personal finances can create hundreds of thousands — even millions — in long-term value.

If you’re unsure how all the pieces fit together, now’s the time to find out. The earlier you plan, the more options you’ll have.