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Starting a Corporation in Canada? Here’s What It Means for Your Taxes #shorts

22 Apr 2025 · 1 min

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1:13

Short explainer by Bob Gauvreau about tax considerations when incorporating in Canada: active operating corporations can access the federal small business deduction; shareholders can be paid via salary (a deductible expense for the corporation) or via dividend distributions (which avoid CPP contributions and — up to about $45,000/year — may be tax-free on the recipient due to the dividend tax credit).

Questions this video answers

Access to the small business deduction.

Salary (deductible inside the business) and dividend distributions.

No — dividends are not subject to CPP contributions.

Somewhere upwards of $45,000 per year may be taken without personal tax being paid, due to the dividend tax credit.

Chapters

Let's talk about the tax implications of setting up a corporation anywhere in Canada. So the idea is, first and foremost, when you set the corporation up, as long as it's active business that's being incurred in the corporation, we're going to be able to get access to what's called the small business deduction. We then have two options which will impact our taxes. One is to go on a salary, which is a deduction inside the business. The other option that we have as a shareholder of the corporation is to take a dividend distribution. There is some benefit in many cases to using dividends. You're not subject to Canada pension plan contributions with respect to dividends. In addition, depending on the amount that you pull out of your corporation with dividends, you can take somewhere upwards of $45,000 out per year without any tax having to be paid on that. Above that, we start paying tax on dividends. The reason we don't pay tax on that is that we get a dividend tax credit that essentially eliminates any of that income from being taxable on your personal circumstances. So those would be the two major considerations about the tax implications for starting a corporation in Canada.