How we help
- Salary vs. eligible dividends vs. ineligible dividends modelling
- Capital dividend account (CDA) tracking and capital-dividend planning
- RDTOH refund analysis on taxable-dividend distributions
- GRIP balance management for eligible-dividend optimization
- TOSI (tax on split income) screening on family-member dividends
- Shareholder-loan repayment patterns and tax timing
- RRSP / pension / CPP coordination with corporate distributions
The mechanics
Owner-managers of Canadian-controlled private corporations have a menu of distribution methods, each with different tax characteristics:
- Salary. Deductible to the corporation (reduces taxable income), taxed as employment income to the owner (with CPP and EI implications), creates RRSP room for the following year (18% of earned income up to the dollar maximum), counts toward CPP benefits.
- Eligible dividends. Paid out of GRIP (general rate income pool — income taxed at general corporate rates). Eligible-dividend tax rates at the personal level are lower than ineligible-dividend rates due to the higher gross-up and dividend tax credit.
- Ineligible dividends. Paid from after-tax small-business-rate income. Higher personal tax rate than eligible dividends, but the corporation paid less corporate tax, so the combined effective rate is roughly comparable to salary.
- Capital dividends. Tax-free to the recipient. Paid out of the corporation's capital dividend account (CDA), which is fed by the non-taxable half of capital gains, life-insurance proceeds on key-person policies, and certain other receipts.
- Shareholder-loan repayments. Tax-free return of capital when repaying loans the shareholder previously made to the corporation. Often the highest-priority distribution in a given year.
The annual review
Each year-end we run a model that compares the owner's total after-tax income under different distribution mixes:
- Pure salary — pay the owner enough salary to use the small-business rate fully, generate RRSP room, and zero out corporate taxable income. Highest CPP contribution; lowest year-end personal flexibility.
- Pure dividends — leave money in the corporation taxed at small-business rates, distribute as ineligible dividends. No RRSP room created; lower CPP cost.
- Mixed (salary up to specified threshold, dividends above) — most common for established owner-managers, balancing RRSP creation against the lower dividend tax rate.
- Capital-dividend prioritization — where the CDA has a balance, distribute it as a tax-free capital dividend before paying any taxable distribution.
Family income splitting
Dividends to adult family members who don't materially participate in the business are constrained by the tax-on-split-income (TOSI) rules in Section 120.4 of the Income Tax Act. TOSI applies the top personal tax rate to "split income" received from a related business, eliminating most of the planning benefit. Exceptions include:
- The "excluded business" exception — family members aged 18+ who work in the business an average of 20 hours per week.
- The "excluded shares" exception — adult family members owning at least 10% of the votes and value of a non-professional / non-service company that earns less than 90% of its income from related-party services.
- The "reasonable return" exception — for adult family members aged 25+, dividends in line with arm's-length compensation for their actual contributions.
- The 65+ exception — dividends received by a spouse aged 65+ from the active business (sourced through the principal shareholder spouse) are not split income.
Refundable taxes and integration
Investment income earned inside a CCPC is taxed at high refundable rates (refundable Part IV tax on dividends from non-connected corporations; Part I refundable tax on passive investment income). The refundable tax is recovered when the corporation pays taxable dividends. RDTOH (refundable dividend tax on hand) tracking is essential — leaving RDTOH balances accumulated without triggering refunds wastes capital.
How we work the file
Most owner-manager-comp engagements are annual. We model the optimal mix before year-end, recommend salary and bonus accruals to bring the corporation into the small-business-rate band, document the dividend declarations, and follow up with the year-end T2 and the owner's T1. Fixed fees are typical.
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.