How we help
- Section 85 rollover to create the holdco structure tax-deferred
- Connected-corporation dividend planning (Part IV refundable tax)
- Safe-income calculation and tracking
- Inter-corporate loan structuring to avoid Section 15 deemed dividends
- Asset protection and creditor isolation
- Holdco as growth-share holder in a future estate freeze
- Integration with insurance planning (corporate-owned life insurance)
What a holdco does
A holding company is a corporation that owns shares of one or more operating companies. The owner-manager owns the holdco; the holdco owns the opco. Distributions of cash up the chain (opco → holdco) happen as inter-corporate dividends — typically tax-deferred under the connected-corporation rules. The cash at the holdco level is "out" of the operating business and shielded from operating-creditor risk.
Why the structure exists
The operating company in a profitable business builds up retained earnings over time. Those retained earnings, sitting in the operating company, are exposed to several risks:
- Operating creditors. A customer claim, a product-liability suit, or a CRA reassessment can attach the opco's full balance sheet, including the accumulated cash.
- Passive-investment classification. Excess passive assets in the opco can erode the QSBC status of the shares (the 90% test), eliminating the future Lifetime Capital Gains Exemption.
- Future tax inefficiency. Distributing accumulated retained earnings out to the owner-manager in a single year (at retirement or sale) usually means a large dividend at top personal rates.
A holdco solves all three. Cash distributed up to the holdco is shielded from opco creditors, removed from the opco's QSBC asset mix, and available for distribution to the owner over time at lower marginal rates.
The inter-corporate dividend mechanism
Dividends from a Canadian opco to a connected Canadian holdco (where the holdco owns more than 10% of the opco's votes and value) are generally tax-free at the holdco level — they're deductible from the holdco's taxable income under Section 112. The dividend doesn't disappear; it sits in the holdco's accumulated retained earnings and can later be distributed to the shareholder as a taxable dividend at the shareholder's tax rate.
This produces a key planning advantage: the timing of the personal tax. Cash earned in the opco can be moved to the holdco today (tax-free at the corporate level) and distributed to the owner over years, smoothing the tax bill instead of crushing it in any one year.
The safe-income tracking
A dividend up to the holdco that exceeds the opco's "safe income on hand" can trigger the gain-on-dividend rule in Section 55(2), recharacterizing the dividend as a capital gain. Safe income is essentially the opco's after-tax retained earnings — the amount of accumulated income that's already been corporately-taxed. Most opcos have substantial safe income; the issue is documentation and tracking, particularly when the corporation has undergone share-class changes, freezes, or reorganizations.
Holdco as freeze platform
Once a holdco is in place, future estate-freeze planning becomes more flexible. The owner can freeze either the opco shares (at the holdco level) or the holdco shares (at the personal level), depending on which platform suits the next generation's involvement. The trust holding growth shares can sit at either level.
Corporate-owned life insurance
Holdcos are common vehicles for corporate-owned life insurance. Premiums are paid with after-tax corporate dollars (lower-tax-bracket dollars than personal premiums in many cases), the policy grows tax-deferred inside the policy, and the death benefit pays into the holdco's capital dividend account — distributable to the shareholder's estate as a tax-free capital dividend. The integration with succession planning is significant.
When NOT to set up a holdco
A holdco isn't always the right answer. The structure adds annual filing complexity and cost, and the dividend-tracking discipline (safe income, RDTOH) requires attention. For very small businesses or owner-managers who systematically distribute all earnings each year, the holdco may add cost without producing material benefit. The break-even is usually around the point where retained earnings start accumulating beyond the owner's annual needs.
How we work the file
Holdco-creation engagements typically include: structural review, Section 85 rollover of the existing opco shares into the new holdco, drafting the new corporate documents, opening the holdco's bank/brokerage accounts, and supporting the first inter-corporate dividend. The accounting team then maintains the year-end T2 filings and inter-company tracking on an annual basis.
What to expect when you call us
Your first call is a free, no-obligation consultation with a tax lawyer. We will review the details of your situation, explain your options under the Income Tax Act and CRA administrative practice, and give you a clear, fixed-fee quote if you choose to retain us. Your consultation is confidential, and once we are retained, communications are protected by solicitor–client privilege.
If you retain us, we begin work within 24 hours of being retained.
Frequently asked questions
Is the consultation really free?
Yes. Most cases qualify for a free, no-obligation consultation with one of our tax lawyers. During the call we'll review your situation, explain your options, and give you a clear quote if you decide to retain us.
What does a tax lawyer do that an accountant does not?
A tax lawyer focuses on the legal side of tax — disputes, litigation, and the structuring of transactions in light of the law and anti-avoidance rules. That includes representing taxpayers in CRA audits and objections, appearing at the Tax Court of Canada, defending penalties and director or derivative liability, and designing reorganizations such as section 85 rollovers and estate freezes.
The most practical distinction is privilege. Communications with a lawyer are generally protected by solicitor-client privilege, while communications with an accountant generally are not and can be demanded by the CRA. Where the facts are sensitive or the matter could become contentious, that protection matters.
Lawyers and accountants often work together — the accountant on the numbers and filings, the lawyer on strategy, privilege, and the legal record. Barrett Tax Law regularly coordinates with a client's existing accountant.
Do you serve all of Canada?
Yes. Barrett Tax Law represents clients across Canada. We have offices and local phone lines in Toronto, Calgary, Edmonton, Fort McMurray, Ottawa, Vancouver, and Winnipeg, plus a national toll-free line at 1-877-882-9829.
Who is Barrett Tax Law and what areas does the firm handle?
Barrett Tax Law is a Canadian boutique tax law firm that represents individuals and businesses in their dealings with the Canada Revenue Agency. The firm's work spans CRA audits and disputes, voluntary disclosures, Tax Court of Canada litigation, collections matters, and corporate and estate tax planning.
The firm was founded in 2009 and has represented many thousands of clients across Canada. Its head office is in Concord, Ontario (Vaughan), and it serves clients nationwide. You can reach the firm toll-free at 1-877-882-9829 (1-877-8-TAXTAX).
Most matters qualify for a free, no-obligation consultation, and most are quoted on a fixed-fee basis once scope is understood, so the cost is known before work begins.
What does a tax lawyer do that an accountant cannot?
Accountants prepare returns and financial statements. Tax lawyers represent you when those returns are challenged, audited, or prosecuted — and our communications are protected by solicitor–client privilege, which accountant communications generally are not.
What should I do if I receive a letter from the CRA?
First, identify what the letter is and what it requires. A CRA letter may open an audit, ask for documents, propose adjustments (a proposal letter), confirm a reassessment, or start collection action — and each carries its own deadline and its own implications. Note any date by which a response is required.
Do not ignore it, and be careful about responding off the cuff. What you say and produce can shape your later objection and appeal position, and casual admissions can be difficult to undo. If the letter proposes adjustments or penalties, or if significant amounts are involved, get advice before responding.
A free consultation can help you understand the letter, the deadline, and the right next step. Acting early — while options are still open — is usually far better than waiting until a deadline is near.
Will the CRA criminally prosecute me?
Most CRA disputes are civil. Criminal prosecution is reserved for serious tax evasion or fraud, usually involving deliberate misrepresentation. If you have unreported income, a voluntary disclosure is one of the standard ways to reduce criminal-prosecution risk.
Is the first consultation really free?
Yes. Most matters qualify for a free, no-obligation consultation with an experienced tax lawyer. The consultation is a chance to describe your situation, get a clear sense of the options and likely path, and receive a fee structure in writing before you commit to anything.
You can reach the firm toll-free at 1-877-882-9829 (1-877-8-TAXTAX) to arrange a confidential consultation. The head office is in Concord, Ontario (Vaughan), and the firm serves clients across Canada.
Are my communications with a tax lawyer confidential?
Yes. Communications between you and your lawyer for the purpose of obtaining legal advice are generally protected by solicitor-client privilege, one of the most strongly protected confidences in Canadian law. In practical terms, the CRA generally cannot compel disclosure of privileged communications.
This is an important difference from working with an accountant or other non-lawyer representative, whose communications and working papers can generally be demanded by the CRA. Where the facts are sensitive — unreported income, offshore assets, or potential penalties — that protection can be significant.
Privilege has limits and can be waived inadvertently, so it should be handled with care. A consultation can explain how privilege applies to your particular situation.
How fast can you start on my case?
We typically begin work within 24 hours of being retained. For audit deadlines, Notices of Objection, and other time-sensitive matters, we move immediately.
What if I have unfiled tax returns from many years ago?
We routinely handle 5+ years of unfiled returns. Through the Voluntary Disclosures Program — applied for before the CRA contacts you — we can usually eliminate gross-negligence penalties and limit interest exposure.