Corporate Year-End Tax Planning Checklist for Canadian Small Business Owners
Corporate year-end approaching? Ottawa CPA Majdi Ibrahim's checklist covers salary, bonuses, dividends, shareholder loans, CCA, and key deadlines.
By Majdi Ibrahim, CPA | Majdi Ibrahim, CPA Professional Corporation | Ottawa, Ontario
The corporate year-end is the moment that separates incorporated business owners who stay in control of their tax situation from those who find out in April what happened in December. Many of the most valuable tax planning decisions — how much to pay in salary, whether to declare a bonus, whether a dividend makes sense, whether a capital purchase should happen before or after year-end — can only be made before the year closes, not after.
This checklist is designed for incorporated business owners approaching their corporate year-end. It covers the compensation decisions, the corporate tax mechanics, the compliance obligations, and the forward-looking items that often get missed. Not everything applies to every situation — but working through the list before year-end, rather than after, is almost always worth it.
We cover related planning detail in our salary vs. dividends guide, our how to pay yourself article, and our year-end checklist for individuals. This article focuses on the corporate side.
At a Glance
The most valuable planning happens before year-end, not after. Once the fiscal year closes, options narrow significantly.
Compensation decisions — salary, bonuses, dividends — need to be made deliberately before the year-end. A bonus declared after year-end generally can't be deducted by the corporation in the prior year.
Shareholder loan balances need attention at every year-end. An unresolved debit balance can trigger personal income inclusion.
Deadlines after year-end arrive faster than people expect. The balance owing is typically due within 2–3 months of year-end — long before the T2 return is due at 6 months.
Year-end is also a good time to look forward. Compensation structure, corporate investments, incorporation planning, and the salary/dividend mix for the coming year are all easier to address with a few weeks of runway.
1. Salary and Bonus Planning
Review total salary paid year to date. How much salary has been declared and actually paid to the owner-manager this year? Is it in line with what was planned? Is it reasonable given the corporation's earnings?
Consider a year-end salary bonus. A reasonable, bona fide salary bonus that is properly authorized and accrued before the corporate year-end may be deductible to the corporation in that fiscal year, provided it is actually paid within 180 days after year-end. The personal tax and payroll withholding obligations arise when the bonus is actually paid, not when it's accrued. This timing difference is a real planning tool, but the bonus must be genuine and reasonable, and the 180-day window needs to be tracked. The corporation's deduction and the personal income inclusion generally don't land in the same tax year — plan accordingly.
Check RRSP room before finalizing salary. RRSP contribution room is generated by earned income, and salary paid in the current year creates room for the following year. If the owner-manager has RRSP room available from prior years and a high-income year makes an RRSP deduction valuable, the amount of current-year salary affects next year's room. The most reliable source for the actual deduction limit is the owner-manager's most recent Notice of Assessment.
2. Dividend Planning
Review whether a year-end dividend makes sense. Dividends are paid from after-tax retained earnings. Before declaring a year-end dividend, review whether the retained earnings support it, whether the personal income level in the current year makes a dividend efficient or not, and whether the eligible or non-eligible dividend question has been considered.
Don't declare dividends informally. A dividend requires a formal directors' resolution recorded in the corporate minute book. Cash moving from the corporate account to a personal account without a proper resolution is not a dividend — it's an unresolved draw that may create a shareholder loan issue.
Review GRIP balance if eligible dividends are being considered. The corporation cannot designate eligible dividends unless it has a General Rate Income Pool (GRIP) balance sufficient to support the designation. Most small-business owner-manager corporations primarily pay non-eligible dividends.
3. Shareholder Loan Review
Check the shareholder loan balance at year-end. If the owner-manager has been taking draws from the corporation during the year without declaring them as salary or dividends, those amounts likely sit as a debit shareholder loan balance. That balance needs to be reviewed and resolved — either by declaring salary or dividends to offset it, by genuine cash repayment, or by reclassifying any amounts that are properly business expense reimbursements.
The repayment deadline matters. The one-year repayment window runs from the end of the corporation's taxation year in which the loan was made — not from the date of the loan itself. An unresolved balance that crosses the deadline is generally included in personal income for that year.
We cover shareholder loan mechanics in detail in our shareholder loans article.
4. Capital Expenditures and CCA Timing
Consider whether any planned capital purchases should happen before year-end. Capital Cost Allowance (CCA) on eligible depreciable property can only be claimed in the year the asset is available for use. For most asset classes, CCA in the year of purchase is limited to half the normal rate (the half-year rule) — but some categories may qualify for enhanced deductions. If a capital purchase is coming anyway, the timing relative to year-end can affect when the deduction becomes available.
Review existing CCA claims. CCA is an optional deduction — you don't have to take the maximum in any given year. In years where the corporation has losses or other deductions that already offset income, accelerating CCA may not add value. In high-income years, it might.
5. Expense Accruals and Timing
Make sure legitimate year-end expenses are recorded. Expenses that are incurred before year-end but not yet invoiced or paid can often still be accrued and deducted in the current year — provided they are genuine obligations that exist at year-end. Rent, professional fees, and other recurring obligations that have been incurred but not yet paid are common examples.
Avoid artificial or unsupported accruals. An accrued expense needs to represent a genuine obligation. Creating a year-end accrual for an expense that doesn't yet exist as a liability — simply to generate a deduction — won't hold up on review.
6. GST/HST and Payroll Account Review
Reconcile GST/HST. Before year-end, confirm that all GST/HST remittances are current and that the balance owing (or refund) on the GST/HST account is what's expected. Discrepancies between billings, collections, and remittances are easier to catch now than after the year closes.
Reconcile payroll remittances. Confirm that all source deductions for the year have been properly calculated and remitted. The T4 reconciliation — matching what was remitted throughout the year against what the T4 Summary will report — happens after year-end, but errors are easier to address if caught before the year closes.
7. Corporate Instalments
Confirm whether the corporation owes instalments and whether they're current. Corporations generally have to pay tax by instalments unless an exception applies, such as being a new corporation or having taxes payable of $3,000 or less under the relevant rules. Instalments may be monthly or quarterly depending on the corporation's eligibility, and the specific due dates depend on the corporation's tax year-end. If instalments have been missed or underpaid, late-payment interest begins accruing from the date each instalment was due — not from the filing deadline.
Plan for the balance-due date. For most corporations, the balance-due date is two months after the fiscal year-end. Certain CCPCs may qualify for a three-month balance-due date for regular corporate income tax if they claimed the small business deduction in the current or prior year and meet the applicable taxable income and business-limit conditions. This is well before the T2 return is due (six months after year-end) — the payment deadline and the filing deadline are not the same. If you expect to owe, start setting aside the amount before year-end rather than scrambling in the first weeks after.
8. Passive Investment Income and the Small Business Limit
Check whether passive investment income is approaching the federal threshold. Federally, the small business limit begins to grind down once a corporation's adjusted aggregate investment income (AAII) exceeds $50,000 in the prior year, and is fully eliminated at $150,000. This is based on prior-year investment income — so investment income earned this year affects next year's access to the small business rate. This is a federal business-limit grind; provincial treatment can differ.
If the corporation is retaining significant investment assets and passive income is growing, year-end is a good time to model whether the passive income grind is becoming a factor — and whether any adjustments to the investment strategy make sense.
9. Capital Dividend Account (CDA) and RDTOH
Check the CDA balance if applicable. If the corporation has realized capital gains, received certain insurance proceeds, or had other qualifying amounts, those flows through to the Capital Dividend Account — from which a tax-free capital dividend can be paid to shareholders. If there's a meaningful CDA balance, year-end is a good time to consider whether a capital dividend makes sense before other dividends reduce the flexibility.
Be aware that a capital dividend election should generally be filed on or before the dividend is paid. Late elections may be possible in some situations, but they can involve penalties and should not be treated as routine cleanup. The timing and process require coordination with your CPA.
Consider RDTOH. Refundable Dividend Tax on Hand (RDTOH) is a refundable tax balance the corporation is owed back when it pays taxable dividends. If the corporation has accumulated RDTOH from passive investment income, a year-end dividend can trigger a partial recovery of that refundable tax — which is a real cash flow consideration. Because there are separate ERDTOH and NERDTOH pools, the type of dividend paid can affect which refundable tax balance is recovered.
10. LCGE and Purification Planning
If a business sale is a future possibility, check the active-asset composition now. For QSBC shares, LCGE access generally requires meeting active-asset tests, including a 90% active-asset test at the time of sale and a 50% active-asset test during the 24-month period before sale, along with other conditions. If the corporation has been accumulating passive investments or cash, those passive assets reduce the active ratio and can disqualify the shares from the LCGE.
Purification — using excess cash in the business, paying dividends to reduce passive assets, or other steps to restore the active ratio — generally needs to start well in advance of any sale. Year-end is a natural moment to review the ratio if a future sale is part of the plan. We cover the LCGE and purification in more detail in our capital gains article.
11. Bookkeeping Cleanup Before Year-End
Get the books current before the year closes. Year-end accounting is faster, cleaner, and less expensive when the books are already current. Common issues to catch before year-end: unreconciled bank accounts, unresolved shareholder loan balances (see above), misclassified expenses, missing receipts for the current year, and accounts that need adjusting entries.
A year-end with clean books is a different exercise from a year-end where the accountant has to reconstruct the year. The former takes days; the latter can take weeks.
12. Owner-Manager Personal Tax Picture
Reconcile the personal side at the same time. Corporate year-end planning doesn't happen in isolation from the owner-manager's personal tax situation. The right amount of salary, the right time for a dividend, the right RRSP deduction — all of these depend on the personal income picture as well as the corporate one.
Key personal questions to review at the same time as the corporate year-end:
- What is the total personal income from all sources this year?
- Is an RRSP contribution sensible this year, and what is the actual deduction limit?
- Will there be a large personal tax balance, and should instalments be reviewed?
- Are any major personal transactions (real estate, investments) happening in the near term that affect the planning picture?
13. Holding Company and Structure Review
If a holdco structure is in place or under consideration, review it at year-end. For corporations retaining meaningful surplus, year-end is a natural point to ask: should surplus be moved to a Holdco before year-end? Is the operating company's passive investment income growing in a way that warrants restructuring? Is the corporate structure still appropriate given how the business has evolved?
We cover holdco considerations in our holding company vs. operating company article.
After Year-End: The Deadlines That Follow
Once the corporate year-end passes, a predictable set of deadlines follows. For a December 31 year-end:
| Obligation | Deadline |
|---|---|
| T4 slips (salary) | Last day of February |
| T5 slips (dividends) | Last day of February |
| Corporate tax balance owing (most corporations) | 2 months after year-end |
| Corporate tax balance owing (CCPCs that may qualify) | 3 months after year-end (if conditions met) |
| T2 corporate return | 6 months after year-end |
The balance-due date comes well before the filing deadline. If you're waiting to file your T2 before deciding what to pay, interest on any balance owing has already been accumulating.
Ottawa & Area
The corporate year-end planning conversation looks slightly different depending on the type of business. A Barrhaven contractor approaching a year-end with a strong billings year may need to accelerate a salary bonus before year-end to balance personal and corporate tax. A Kanata tech company retaining significant earnings for the first time may need to think about passive income exposure for the first time. An Orléans professional services firm may have multiple shareholders with different compensation needs. The checklist above applies in each case — the priorities just shift.
What Happens When You Bring This to Majdi Ibrahim, CPA?
As an accounting firm in Ottawa working closely with incorporated business owners, our year-end process is built around catching these items early rather than reacting to them in April.
A year-end review that happens at the right time. We flag the year-end conversation proactively — typically 6–8 weeks before the fiscal year closes — so there's still time to act on anything that matters.
Compensation modelling before year-end. We model the after-tax outcome of different salary, bonus, and dividend combinations so you're making an informed decision, not guessing.
Bookkeeping coordination. We make sure the books are clean and reconciled before year-end, so the year-end filing is efficient rather than reconstructive.
Ongoing awareness of changing circumstances. The right year-end plan in year three of a business is different from year one or year ten. We revisit the relevant items each year rather than applying the same template.
Book a consultation at www.treehousecpa.com
Frequently Asked Questions
When is the corporate tax balance due after year-end?
For most corporations, the balance owing is due two months after the fiscal year-end. Certain CCPCs may qualify for a three-month balance-due date for regular corporate income tax if they claimed the small business deduction in the current or prior year and meet the applicable taxable income and business-limit conditions. This is well before the T2 filing deadline of six months — the payment and filing deadlines are not the same. If the balance-due date falls on a weekend or CRA-recognized holiday, it generally moves to the next business day.
Can I declare a salary bonus after year-end and still deduct it in the prior fiscal year?
Generally, a bonus needs to be properly authorized or accrued before year-end and paid within 180 days after year-end to be deductible in that fiscal year. If the bonus was not authorized or accrued before year-end, it generally cannot be added later and deducted in the prior fiscal year. The bonus must also be genuine, reasonable, and properly recorded. This is one of the main reasons to review compensation before the year closes, not after.
What is the shareholder loan deadline I need to watch at year-end?
The repayment deadline for a debit shareholder loan balance is one year after the end of the corporation's taxation year in which the loan was made. For a December 31 year-end, draws made at any point during 2025 generally need to be resolved by December 31, 2026 — by declaring salary or dividends, repaying cash, or reclassifying amounts as legitimate reimbursements. An unresolved balance after that deadline is generally included in personal income for the year the loan was made.
What is the passive investment income threshold that affects the small business rate?
Federally, the small business limit begins to grind down once adjusted aggregate investment income exceeds $50,000 based on the prior year's investment income, and is fully eliminated at $150,000. This is a federal business-limit grind; provincial treatment can differ — Ontario does not parallel this grind in the same way. If the corporation and any associated corporations are approaching these thresholds, the corporate tax impact on next year's active business income is worth modelling.
What is the Capital Dividend Account and why does it matter at year-end?
The Capital Dividend Account accumulates the non-taxable portion of capital gains realized inside a corporation, along with certain other amounts. A corporation with a CDA balance can pay a tax-free capital dividend to shareholders, but the election should generally be filed on or before the dividend is paid. Late elections may be possible in some situations but can involve penalties. Year-end is a natural time to review whether a CDA balance exists and whether a tax-free capital dividend makes sense.
What should I bring to a year-end planning meeting with my accountant?
The most useful items: recent bank and credit card statements, any large or unusual transactions from the year that have not been classified, recent payroll records, any pending capital purchases or major expenses, a sense of the personal income picture for the year, and the prior year's Notice of Assessment for RRSP room. Arriving with this information makes the year-end conversation much more productive.
This article is provided for general informational purposes only and does not constitute personalized tax, legal, or financial advice. Tax rules and deadlines are subject to change. Please consult a CPA for advice specific to your situation.