Corporate Capital Gains Strategy Simulator

capital gains harvesting

This simulator illustrates possible options for incorporated business owners to consider in light of the proposed Federal Budget. If passed into law, the capital gains subject to tax will increase from 1/2 to 2/3 effective June 25, 2024. It is meant to stimulate discussion and planning with your tax and financial advisors. It is not specific tax or investing advice. I am not a doctor. Not a financial planner, nor an accountant. You will also find that there are situation-specific nuances to consider.

This simulator uses a Canadian Controlled Private Corporation (CCPC). Personal capital gains strategies are modeled here instead. Again, don’t do anything rash about the proposed changes to capital gains tax. Analyze and discuss with your advisors. They will be trying to wrap their heads around this too. So, it is vital to be an informed client. The legislation also hasn’t been passed in its final form yet. I would consider this “beta” and if you find something that totally breaks it, let me know in the comments. I am doing my clinical job this week, but I will see what I can do.

How to Use The Calculator

To use the calculator, read and accept the disclaimer. It will open tabs at the top of the calculator frame on this page. There are personal, corp, and asset allocation inputs. If you do not know details, don’t sweat it. It runs without them, but will try to optimize further if it has them. Corporate tax planning is complicated. Rules of thumb often do not apply and modeling over multiple years is required. So, it is complex.

The simulator is limited to 20 years so it would run in a browser. If your retirement age is more than 20 years away, it still only does 20 years. If before then, it will switch to no active income or salary, and just use dividends. It draws from non-registered accounts. It has tens of thousands of calculations running in the background and is best used on a desktop, laptop, or tablet. Below are buttons linked to brief explanations lower on this page. Or you can jump right in.

Corporate Optimal Compensation Algorithm

The three comparators use an optimal compensation algorithm. Basically, enough dividends to release notional accounts if tax-efficient to do so or the personal cash flow is required. Then salary to make up the difference. Income splitting using a combination of salary and dividends (if able) is accounted for. TFSA and RRSP room generated each year is fully used for tax-sheltered investing. This algorithm is unpacked on be Episode 13 of The Money Scope Podcast.

self-employed optimal compensation

The compensation mix is targeted to an after-tax spending target. If there is excess personal cash flow due to capital dividends or efficient flow of taxable income at low rates, then the excess is invested and attributed to the lower-earning spouse (up to their after-tax personal income). The remainder invested is attributable to the higher-income spouse. When the personally invested taxable money is accessed depends on the strategy.

Corporate Capital Gains Harvesting

This strategy uses a capital gains harvest before June 25, 2024. That means selling and rebuying assets to crystallize the capital gain before the change. It means the capital gain is taxed this year at a lower rate. However, it also means that you could file a special election to give a tax-free capital dividend. The simulator does that. The net effect is some corporate tax this year. But, also more personal after-tax money.

The dividend could be paid out of operational accounts and the investments left the same. If not enough cash, then it would decrease the investments in the corporation. That money is not lost. It can be invested or spent personally. Capital dividends are not taxable income. Therefore, not subject to the TOSI rules. The simulator assumes that a lower-income spouse is a non-voting shareholder and able to receive a capital dividend.

Corporate Capital Gains Tax Rate Change Strategies

Harvest & Spend

This strategy dispenses a capital dividend. The excess personal cash is used to live off of. This means that the corporation can pay out less salary and dividends to fund personal spending. The result is more money in the corporation because less salary and dividends are required to pay for your personal tax and leave money to live on. An increase in corporate tax deferral and decompresses the corporate tax liability at the same time. Below is an example compared to using a harvest vs non-eligible dividends to fund $7044 of personal spending.

corporate capital gains rate

Harvest & Invest

The harvest strategy and capital dividend is the same. Instead of reducing salary and dividends from the corporation, the excess personal cash is invested. Preferably attributable to a lower-income spouse. This decompresses more from the corporation, but also loses more corporate tax-deferral.

No Harvest

Basically, do nothing. The model assumes that the money will eventually come out at the proposed capital gains rate. It maintains the current level of corporate tax deferral. It also maintains the current level of legislative tax-risk. That is good if future governments change the rules to tax corporations favorably. It is bad if they worsen the punishment of incorporated business owners further. Not harvesting prevents the Liberal Government from getting the current year tax bump (at the expense of future governments), but the simulator helps you model the potential personal cost of that.

Model Portfolio & Return Assumptions

For simplicity, I just used a model portfolio. Below is what the equity side looks like. I used a mix of ETFs and no additional advisor fee. A quick view is shown and adjustable in the asset allocation tab. Foreign withholding taxes are accounted for. The fees used are a DIY ETF portfolio. Inflation is modeled at 2.1%. I assigned CPP contributions a value based on a 2% IRR which is about right for a business owner taking it at age 65 and living to age 85.

After-Tax Account Values

Portfolio Liquidation Value

Accounts are discounted for the embedded tax liability using the new capital gains rules following the initial capital gains harvest. That is displayed as liquidation in one year in the “portfolio liquidated” tab. When liquidated, the corporation would also use all of the notional accounts. It dispenses capital and eligible dividends as much as possible. Then, the rest as non-eligible dividends.

Death or sale would be a common cause of this. It does not account for donating appreciated stock to charity (which can eliminate tax and improve tax efficiency). Nor does it account for the lifetime capital gains exemption if you can sell a qualifying business.

Portfolio Gradual Drawdown Value

I have hidden this output for now. It didn’t materially change the results and exceeded my conversion software’s ability. A tax discount for a more gradual drawdown targeted to the annual cash flow required is in the “gradual draw”. That is important because corporations operate on tax deferral. Tax deferral to a lower future tax rate rather than mostly the top tax bracket due to liquidation is more beneficial.

The drawdown does not use an optimized algorithm to draw from a mixed sequence of corporate and personal accounts. Because you cannot know the sequence to attribute a specific tax liability to each account, an average tax rate is applied to each of the income/account types based on the pre-tax amount required to give the after-tax money to spend at target.

About the Tax Calculations

  • Personal marginal tax rates by province.
  • Dividend tax credits, CPP contributions and credits, employment tax credit, personal amount, and healthcare levies.
  • RRSP contribution room and deductions are used ASAP.
  • Corporate tax rates on active income. Adjustable for access to the SBD. Including PQ. I also account for break in tax integration due to passive income in ON and NB. That improves harvesting if it also reduces the SBD in ON and NB coupled with spending the excess eligible dividends in a timely fashion. It encourages the movement of money out of a corporation rather than passively investing (just with a carrot instead of a stick). I did not account for the favorable break in tax integration for SK small businesses on income of $500-$600K.
  • Corporate Passive Income is taxed at 38.33% for eligible dividends. The federal/provincial rate on other income. GRIP,eRDTOH, and nRDTOH is generated and used accordingly. If unused, its value is eroded by inflation to keep everything in inflation-adjusted real dollars. Foreign dividends effectively reduce the nRDTOH available. We discuss this in Money Scope Episode 10 on corporate investing.
  • Not accounted for: Canada Child Benefit, OAS/GIS. Donations. Alternative minimum tax. Lifetime capital gains exemption. Other boutique credits & stuff I haven’t thought of.


  1. This is an amazing piece of work Mark, thank you for building this!!! Not entirely sure if I entered everything correctly, but the modelling suggests superimposed/overlapping curves in every plot/tab except for the “Annual Tax Drag on Earned Income & Investment Growth” chart. That shows a 6% difference at 20 year mark in favor of ‘Harvest & spend’ vs “no harvest’ (6 years post retirement at 60). I apologize, as I’ve read this a few times. Can you just clarify does that mean that my net tax drag will be 6% difference cumulatively, if I harvest all the capital gains now vs no harvest, or rather if I harvest the capital gains every year vs no harvest. I just dont fully understand as all the other curves show no net difference. Sorry, confusing.

    1. They are all pretty close and the lines are thick. The difference is bigger or smaller depending on province (tax integration) and income/spending (how well you can keep the notional accounts flowing). The annual tax drag is just for that year only. I put that just to help me understand what was happening. For example, drag picks up when hitting passive income limits. It drops when investing via a low-income spouse or in an RRSP. It is the aggregate of all those factors. Tax deferral also plays a role via the RRSP, cap gains, and corporation.

      The impact of tax deferral is magnified when drawing down slowly at a lower future tax rate. That is why I made the 20 year gradual drawdown tab in addition to the liquidation tab. It also accounts for the fact that there is still a baked in tax liability that will be different for each account depending on the strategy. Bottom line is the 6% difference after 20 years. I suspect it would magnify over a longer time period and optimized drawdown strategy, but the model was complex enough already and the message is already there. I thought about hiding the Pay Mix and Tax Efficiency data just to keep it simple, but thought I should be as transparent as possible because there is so much happening in the background. People assume that I haven’t considered this or that. It also helps me spot potential errors or nuances if something doesn’t make sense.

      The explanation for the advantage of harvest and spend is that the harvest removes the tax liability on the capital gain at the lower rate. Now, the downside would be loss of tax deferral from that. However, by paying out a capital dividend and then living off of it – the corp can actually pay out less salary and dividends for a few years. So, the corporate tax deferral (very powerful) is preserved. All the detailed graphs helped me figure that out, but the main ones are the after-tax liquidation and the after-tax gradual drawdown (which is more realistic and accounts for the tax deferral advantage better than just liquidating). This is actually why I did harvesting before this latest tax change regardless. I honestly have very little money on the table in my corp.

      I am still playing around with it.

  2. Hmm, not completely sure I understand all of this but I think I may harvest, pay extra dividends this year and maybe next few (I am dividend only) and shuffle into personal because that is very low and I wont be seeing $250K gains anytime soon in there. Not certain paying my accountant to do Capital Gains dividend is worth it for me this year. This is probably my last active year (but who ever knows hey) and I assume the bit of active from this year will help a little with the SBD vs passive clawback.

    1. Hey Mark,

      It is an interesting problem and can be very situation specific at lower income levels. I am coming out with a more detailed article shortly to go through some of the big issues. Then, we do some cases. I would definitely wait to see if the legislation that gets tabled is different. Having a $250K threshold for corporations would preserve the fairness of tax integration. It would take the pressure off too though and I think a big part of this is political strategy to pull forward a bunch of tax revenue now at the expense of the next government.

      1. Very good point and I would also be much more content with. $250K threshold also on corporate accounts.

  3. Hi Mark, it was mentioned on Episode 10 of Moneyscope in passing that attribution rules do not apply to CDA withdrawals. Can you tell me how it is advantageous to split these withdrawals? I thought the Capital gain was already paid in the corp so you take them out tax free.

    1. Hey Christine. The potential planning advantage is if the corporation active owner has a non-voting shareholder spouse with a low income, it could be advantageous for that low income spouse to build a taxable investment account attributable to them. And very lightly taxed. That requires that they receive the income that funds it. A capital dividend is a way to give them income to do that and doesn’t get caught up in the TOSI rules (automatic top tax-rate) because it is non-taxable.

      1. Thanks for the quick reply Mark,
        So the advantage is for the lower income spouse to be able to invest in an unregistered account – it’s not about a lower tax level for the money coming out of the corp.

        Really appreciate MoneyScope – it’s an incredible resource, thanks for taking all the time to do it.

        1. Exactly. It is part of playing the long game to have multiple pots of money growing efficiently and then to choose from strategically. Also mitigates against corporate taxation targeting by politicians.

  4. Hi Mark,
    So just want make sure I have this right – the advantage is for the lower income spouse to access money to invest outside the corp. There is no immediate tax advantage for the lower income spouse to take the dividends.

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