6 min read
Year-end tax planning for incorporated professionals
Salary or dividends, the small business deduction, bonus timing and RRSP windows, with each rule linked to the CRA page that states it.
Most of the tax decisions that matter for a professional corporation have to be made while the year is still open. Once December 31 has passed, the return mostly records what happened. The planning conversation belongs in October or November. This is what it usually covers, with the rule behind each point linked to the Canada Revenue Agency page that states it.
Start with reconciled books
Before anything else, the books need to be current to the end of the most recent month. Not roughly current. Reconciled. A planning conversation built on a ledger that is three months behind produces decisions that have to be undone in April.
From a reconciled ledger we can estimate the corporation's taxable income for the year, what it has already paid in instalments, and what the personal picture looks like for the owner and any family shareholders. Everything below depends on those three numbers.
Salary, dividends, or both
An incorporated professional can be paid a salary, receive dividends, or take a combination.
Salary is a deductible expense to the corporation. It creates RRSP room: your deduction limit for a year is the lesser of 18% of your earned income in the previous year and the annual limit, which was $32,490 for 2025 [1]. Salary also requires Canada Pension Plan contributions from both the corporation and you. For 2026, the maximum pensionable earnings are $74,600, the basic exemption is $3,500, and the employee and employer each contribute 5.95% up to a maximum of $4,230.45 [2]. A second additional contribution applies on earnings above that ceiling [2]. Salary also means running payroll: source deductions through the year and a T4 in February.
Dividends are paid from the corporation's after-tax income. They do not create RRSP room and do not attract CPP contributions. Whether a dividend is "eligible" or "other than eligible" depends on the corporation's designation and the rate of corporate tax that was paid on the income being distributed; an eligible dividend is one the corporation has designated as such [3].
The right mix depends on the owner's other income, how much RRSP room they want, whether they value the CPP entitlement, and how much cash they actually need to take out. It is a calculation, and it should be run each year.
The small business deduction
Active business income up to the business limit is taxed at the small business rate. For a corporation not associated with any other corporation, the maximum business limit is $500,000 [4]. Federally, income eligible for the small business deduction is taxed at a net rate of 9%, against 15% for other corporate income [5].
Two things reduce the limit for a professional corporation.
The first is passive investment income. The business limit of a Canadian-controlled private corporation is reduced where it and its associated corporations earn between $50,000 and $150,000 of income from passive investments, and it is nil once that income exceeds $150,000 [4]. A corporation holding a sizeable investment portfolio needs to know where it stands before year-end.
The second is association. Corporations controlled by the same person or group share one business limit between them [4]. If you own a professional corporation and a holding company, the limit is allocated, not duplicated.
Timing a bonus
A bonus can be accrued in the current year and deducted by the corporation, provided it is actually paid within 180 days of the corporation's year-end. If it is still unpaid on that day, the Income Tax Act deems the expense not to have been incurred in the year and moves it to the year in which it is paid [6]. That lets the corporation take the deduction now while you report the income in the year you receive it.
RRSP timing
RRSP contributions made in the first sixty days of the following year can be deducted on the prior year's return. For the 2025 return, for example, the CRA counts contributions made from March 4, 2025 to March 2, 2026 [1]. For the 2026 return the window runs to the sixtieth day of 2027.
Family shareholders
Paying a spouse or adult child a salary for work they actually perform is deductible, provided the amount is reasonable for the work. Paying them dividends can bring in the tax on split income, which is calculated on Form T1206 and can tax the dividend at the top marginal rate unless one of the exclusions applies [7]. The exclusions depend on age, hours worked and the nature of the business, and they should be checked before a dividend is declared, not after.
What to bring to the meeting
The corporation's books to the end of the latest month. Last year's corporate and personal returns. A list of anything that has changed: a new associate, a new lease, a large purchase planned, a change in family circumstances. And a sense of how much cash you need to take out between now and spring.
With that, an hour in the autumn is usually enough to settle the year.
Sources
Checked against the linked pages on 3 September 2026. Rates, limits and thresholds change; confirm the current figures before acting.
- Canada Revenue Agency, How contributions affect your RRSP deduction limit.
- Canada Revenue Agency, CPP contribution rates, maximums and exemptions.
- Canada Revenue Agency, Eligible dividends.
- Canada Revenue Agency, T2 Corporation Income Tax Guide, Chapter 4: small business deduction.
- Canada Revenue Agency, Corporation tax rates.
- Income Tax Act, subsection 78(4), unpaid remuneration.
- Canada Revenue Agency, Form T1206, Tax on Split Income.
This article describes general rules and is not advice for any particular situation.