Corporate Capital Gains Harvesting To Boost Tax Deferral or Current Personal Finances

I first wrote about the strategy of realizing a capital gain inside a Canadian Controlled Private Corporation (CCPC) on purpose around five years ago. Justin Bender also wrote about this “crazy like a fox tax planning” around the same time and reposted it recently. Great minds think alike and this is a revisit of what I call Capital Gains Harvesting. It is less of a mouthful than crazy-like-a-fox, but the concept still confuses people. Surprisingly, it is still not broadly discussed by accountants and financial planners. The impending capital gains tax changes make it a more urgent discussion if you have significant unrealized capital gains inside your corporation.

Action Required. Even if you have an advisor. Especially if you are an advisor.

Wait until the final legislation is passed and also discuss it with your tax advisor before doing a capital gains tax harvest. However, you must learn about it before then. You may need to bring it up as a strategy for discussion. This post is long and comprehensive. I did that because when you discuss this with your advisors. Or if you are an advisor, there is a lot of “what about this” or “what about that” to consider. It is complicated, but I will break it down into the main variables at play. I have embedded links in the text to a more fulsome discussion of some of the terminology used and the corporate taxation mechanisms involved.

I want you to feel confident when discussing and considering the options. Most people will need to read it more than once, and come back to it. Perhaps, also refer their advisors here to read it. Everyone is trying to digest these issues. Myself included. If you are already a tax and financial planning ninja, you can flip to the executive summary, and commentary is welcomed. I will also use the harvest strategy simulator to model some cases in future posts. This post lays the groundwork. The good news is that it can be boiled down into some broad rules of thumb.

Capital gains tax harvesting is a great tax planning tool for an incorporated professional. Not only to fund a big splurge, but as a strategy to deal with the impending tax changes on capital gains. Learn more about the nuts and bolts of capital gains harvesting. How it could counter-intuitively boost corporate tax deferral, and remove a tax liability. While also diversifying against future tax legislative risk (like the current change) – and sometimes even setting you up to invest more tax efficiently moving forward.

I wrote about the basics of capital gains and the tax change previously. Many people have heard of the concept of tax-loss harvesting. That is selling a holding with a capital loss and re-buying a similar (but not identical) one. That allows you to stay invested, but have a realized loss to offset realized capital gains. Pushing the tax bill out further into the future. Capital gains harvesting is the mirror image of that.

You sell a holding that has a capital gain and then immediately re-buy it. That way, you are not missing time invested in the markets. Unlike capital losses, there is no “superficial gain” rule. You can re-buy the identical security to what you sold. If you are planning to rebalance or change up your portfolio, this also offers an opportunity to do that as you re-buy investments with the proceeds of your capital gain.

Main Effects of a Capital Gains Harvest

There are three main effects of harvesting a capital gain. It triggers capital gains tax – due when with your next tax filing. That would be the fiscal year-end for a corporation. It also resets the cost basis (book value) of the investment to the current market value. That means the tax liability of the capital gain is reset to zero and starts growing from that new level moving forward.

realizing capital gain

In a CCPC, the third effect is to add money to the corporate capital dividend account. A very efficient way to get money into your personal hands tax-free. That is what makes this different from personal capital gains harvesting and I will explain more about how it works later.

A Mixed Tax Planning & Financial Planning Decision

Whether a capital gains harvest makes sense for a corporate investment account is a balance of three big variables. There is corporate passive income tax on the realized capital gain now instead of later (bad). Using a capital dividend may allow you to pay less out of your corporation now. That increases corporate tax deferral on the active income (good). The third variable is what your personal options are to deploy extra cash. If that is more efficient or attractive than corporate investing, you may choose that rather than increasing corporate tax deferral. That also has a fourth benefit, diversifying your tax risk. As we have seen repeatedly, corporations are poorly understood by politicians and the public. They are also used primarily by a small voter block. Together, this makes them a perfect tax target.

ccpc tax planning

Realizing Gains = Lost Tax Deferral

The net effect of doing a capital gains harvest is to realize the capital gain now instead of later. Realizing the capital gain triggers the tax on it. Normally, that is a bad thing. Realizing a capital gain and paying tax now means less money to re-invest now.

That opportunity cost of lost growth from taxes paid early compounds over time. This is why tax-loss harvesting has more rules to prevent using it to push net capital gains tax further out into the future. It is also why the strategy of purposefully harvesting capital gains is often dismissed out of hand.

Importantly, tax deferral cuts both ways. If you avoid paying tax at a low rate now, but defer to pay it at a higher rate in the future, that could mean an overall tax increase and less after-tax money. That happens in the comparison of an RRSP (tax-deferred & sheltered) vs a TFSA (no deferral & tax-free growth). If you were forced to choose between them. If not, I’d use both because there is also tax-sheltered growth in addition to the deferral issue. This underlies the knee-jerk reaction to realize capital gains at the lower current tax rate before the June 25th tax hike. Tax-exposed accounts are different.

Lost Tax Deferral Is Usually Bad in a Personal Taxable Account

Tax deferral in a tax-exposed account is powerful because of compound growth on the money that would have been lost to paying taxes early. Even with the impending 33% increase in tax on personal capital gains, saving some tax before June 25th is ultimately surpassed by the strategy of not realizing the gain. In the example below, a $1MM capital gain is realized before or after June 25, 2024. There are tax savings in the first year by avoiding the inclusion rate jump from 50% to 67%.

However, the lost compound growth from paying taxes now instead of later catches up. If you were to have otherwise waited over 7 years to liquidate the investment, you would have more after-tax money. Even paying a higher tax rate. Below is a screenshot of my personal capital gains harvest simulator for the impending change. You can adjust the variables and province. The situation with a corporation adds another layer of tax deferral which may be even more important.

This section gives an overview of important parts of corporate taxation. The direct relevance to capital gains harvesting is the following. You will generate some nRDTOH from the taxable part of the capital gain. That requires paying some non-eligible dividends to release that refund to the corporation.

If the gain is large, the included half (soon to be two-thirds) is passive income for the passive income limits. That could bump some corporate active income to the general rate. That is a penalty in most provinces and a bonus in Ontario and New Brunswick.

Because of the above factors, how much you spend personally can impact the efficiency of a corporate capital gains harvest. If you spend a lot, then you can use dividends to keep the RDTOH flowing. Also, if bumped over the passive income limit, you can use more eligible dividends to make up for the corporate tax bump. If you understood all of that, then you can skip this section.

Corporate Tax Deferral

Investing using a corporation is another form of tax deferral. When you earn active business income, it is taxed at the small business or general corporate tax rate. That is about 12% or 27% respectively (varying by province). Outside of a low personal income, that corporate rate is usually lower than the personal tax rate. It leaves more capital to invest inside the corporation. You pay the rest of the tax when you pay out dividends later, and pay personal tax. It is not a tax savings because the corp plus personal tax is usually more than if you’d earn the income directly. However, it is a partial tax-deferral. That extra money can compound until you ultimately pay it out and pay the rest of the tax.

This tax deferral to leave capital in a business for investing is a good tax policy. It allows incorporated businesses to have more money to invest and grow the business. That grows the broader economy and a rising tide lifts all boats. Passive investment helps other companies to grow or provides other services (like rental housing), but it is an indirect link.

Passive Income Tax & RDTOH

There are rules in place to prevent corporations from having too much of a tax deferral advantage from passive investing. Investment income (interest, dividends, and the taxable part of a capital gain) is taxed at a rate approximating the highest personal one upfront. That is functionally pre-paid tax – the opposite of tax deferral.

However, some of that tax is refunded, when the money is paid out as a dividend and personal taxes are paid. That is the refundable dividend tax on hand (RDTOH). Since you usually require money to live on, using dividends can keep that RDTOH flowing back to your corporation. You can pay a dividend out of your corporate operational money and leave your investments in your investment account.

nrdtoh nerdtoh

So, if you spend enough personally to justify using some dividends, a corporation can stay very tax-efficient. If you don’t spend enough, you face either paying dividends you don’t need (and the tax). Or paying the high upfront tax drag and not getting the refund until some time in the future when it represents less buying power due to inflation (RDTOH trapping). It is like managing a reservoir of money with a dam. You must keep enough retained in the reservoir to grow for the future or irrigate during a drought. However, leaving it stagnant breeds the tax-skeeters.

The Active-Passive Income Limit

Since you could potentially keep a corporation with passive income tax efficient, another rule to prevent an advantage was added in 2018. Basically, if a corporation has over $50K of passive income in a year, it decreases the threshold at which the corporation’s active income is taxed at the lower SBD rate (~12%) up to the general rate (~27%). That is a ~15% bump, but one dollar of passive income bumps $5 of active income to the higher tax rate. So, it is really a much larger tax bump. Fortunately, you get some of the extra tax back via the enhanced dividend credit when you pay out eligible dividends and personal tax.

The net effect is an upfront tax bump. Again, the opposite of tax deferral. However, if you flow all of the money through, it is a slight tax bump. Or even an advantage in provinces where tax integration of general corporate active income is tighter than for small business income (BC or PQ without the provincial SBD). In Ontario and New Brunswick, there is an advantage due to how GRIP works. Either way, it is a policy to incentivize you to keep money flowing out of a corporation, instead of growing a massive reservoir of partially taxed money. It uses a big stick in most of Canada, or a small carrot in some provinces. Below is a high-level illustration using BC and then Ontario. It is a slide show to demonstrate loss of tax deferral, but attenuation if you flow money out and pay personal tax.

I went through the details of how tax integration works for capital dividends in a corporation here. Basically, when you realize a capital gain in a corporation, it triggers tax. Loss of tax deferral. That tax is ~50% on the included part of the capital gains. That is half before and two-thirds of the gain after the June 25th tax changes. However, 31% of the tax is recouped as RDTOH when you pay out enough dividends. If you need money to live, using a dividend to pay for that is not a penalty. Together, that translates to about 10% tax in the corporation. A very minor loss of tax deferral.

Paying a Capital Dividend

What people don’t realize is that you can use a capital dividend to boost corporate tax deferral by much more than that 10% lost deferral from realizing the capital gain early. This still applies after June 25th, 2024, but it is better before then. When you realize a capital gain in a corporation, the excluded half (or soon to be one-third) is credited to the capital dividend account (CDA). If you have a positive balance in your corporation’s CDA, then your corporation can pay out a tax-free capital dividend.

There are a few important steps to paying a capital dividend. The gains must exceed previous losses to have a positive balance. Your accountant has to file a special election (paperwork) that CRA approves to confirm that. After that is approved, you can pay the money from any corporate account you want. We pay from our corporate operational bank account and keep our investments invested. If you don’t have enough in there, you could move some money from your investment account to the bank account to use.

The process usually takes a couple of weeks. For getting 50% of the realized gain to the CDA vs 33.3%, having the sale settle before June 25th is what matters. I usually do my capital dividends after my corporate year-end along with my corporate taxes.

What to do with the money

Another rationale that is used to argue against doing a capital gains harvest is: What would you do with the money? The implication is that if you don’t need money, don’t realize a capital gain and trigger taxes just to give a capital dividend. “Keep it all in the corp” usually follows.

However, there are always ways that a positive CDA balance and capital dividend can be used to your advantage. It is just a question of how. Depending on your circumstances, you could use that to boost corporate tax deferral or to deploy money more tax-efficiently personally than it was in your corporation. Not thinking broadly enough to realize this is why many advisors overlook this strategy. I will now explain both of those options.

If you truly do not have a better personal use for the capital dividend, use it to boost corporate tax deferral. That means keeping more partially taxed money in your corporation now. Then, paying it out later. It seems counter-intuitive. However, when you pay out a capital dividend, it means that you can decrease payments using other taxable income. We pay ourselves to fund consumption and contribute to personal investment accounts (like an RRSP, RESP, FHSA, TFSA, or cash account).

Usually, we would use an optimal mix of salary and dividends to do that. Enough dividends to release our RDTOH to the corporation while also giving us personal money to spend. Then, enough salary to bridge any gap between that and our spending needs. If you have a lump of cash in your personal account from a capital dividend, you can spend it. So, the question is: How much would you have to pay out of your corporation for the same after-tax spending power?

How a Capital Dividend Reduces Regular Income

Even if I have a bunch of personal cash, I might pay out some non-eligible or eligible dividends. If the refund is much greater than my personal taxes. Also, the amount of dividends to fully release RDTOH is usually 80-100% of the passive income received by the corporation. Unless you have low spending, significant personal income, and/or very high corporate passive income, that is not usually enough to fund your personal needs. So, you would pay out extra dividends or salary to meet that need.

I will illustrate this with an example. Let’s say I harvested a $10K capital gain in my Ontario corporation. I then flow that through as a $5K capital dividend and $4k of non-eligible dividends. The net corporate tax is $1K. If I didn’t do the harvest, there is no corporate tax triggered. Seems good. However, I would have to pay either $13593 as a non-eligible dividend or $15286 of salary to get the same after-tax money to spend. In other words, harvesting a capital gain and using a capital dividend means keeping $3593 to $5286 more money in my corporation. A massive boost to corporate tax deferral.

When a Capital Dividend Does Not Reduce Regular Income Needs

The above example was at Ontario’s top marginal tax rate. A capital gain harvest triggers 10% of net corporate tax. It is possible that a harvest could be more expensive in terms of current tax if under 10% of personal tax is triggered with regular income. For example, at the lowest Ontario tax bracket, a non-eligible dividend would leave more money in the corporation than doing a harvest. Compared to salary, a harvest and capital dividend still boost corporate tax deferral, but by less – only 8%. You would also want to always be sure to take at least enough income to use the basic personal amount tax credit or any other non-refundable tax credits.

Another factor that I did not mention is income-tested benefits. For example, if you have significant Canada Child Benefits, OAS, or a kid applying for OSAP – having a lower household income has an outsized benefit beyond the marginal tax rates. That would favour using a harvest and lowering your taxable income.

It is not always a slam dunk. However, the flow-through of capital gains is pretty tough to beat. At taxable incomes above $55K in Ontario, a harvest boosts corporate tax deferral relative to non-eligible dividends. For eligible dividends, the cut-off is over $103K when the net tax is over the 10% that a harvest triggers. When the inclusion rate increases to 66.67% after June 25th, the thresholds will rise further. So, there is a bigger advantage before then.

Boosting corporate tax deferral would actually be my “Plan B”. It still leaves a bunch of partially-taxed money in the corporation subject to the risk of more tax hikes targeting small business owners. An easy target. We’ve seen that repeatedly now. My “Plan A” would be to use the excess money to invest in a lower-risk or more tax-efficient way than a corporation.

Instead of using the cash from a capital dividend to keep more money in the corporation, you could continue to pay yourself with the usual amount of salary and dividends. That makes sense when you can use the excess cash from the capital dividend to invest efficiently personally. I will give some examples of that.

Repay Personal Debt

debt investing

For example, if you have troublesome personal debt. That needs to be repaid using after-tax personal money. Instead of taking extra taxable income from the corporation, you could use the capital dividend cash to pay down debt. Yes, mortgages are debt too. People have rediscovered that recently.

Moving forward, that is like a risk-free and tax-free return equal to the interest rate. If you have a debt at 4%/yr and are in a 54% tax bracket, you would need a 9% return to beat that. Good luck finding a 9%/yr risk-free return.

Top Up Unused Tax Shelters

A corporation is a tax-exposed account. If you have unused TFSA or RESP room, those are tax-shelters and require after-tax personal money to contribute to. So, a capital gains harvest is a very efficient way to get that money to top up unused shelter.

The lifetime contribution limit for an RESP is $50K/kid. However, if you do a lump sum of more than ~$16.5K, you could start to give up some of the grants. The grants are a guaranteed 20% return. It may be possible to do better than that, but that requires a whole bunch of assumptions to unfold as planned. Particularly if taking a large tax hit while moving money out as an incorporated parent. This is an opportunity to get around that.

Similarly, the tax-free growth of a TFSA can catch up and pass a corporation over time. Even with a large tax hit to access the money from a corporation. That can make a major difference over a lifetime. Especially if OAS clawbacks and other income-tested benefits enter the picture later in life. A capital gains harvest doesn’t even have the upfront tax hit to overcome. It is all gravy if used to invest in a TFSA. Interstingly, one paper showed that a corporation might beat a TFSA with “capital-gains-only” as the investment income source.

Unused RRSP or FHSA contribution room may be an exception. Consider using taxable income (salary bonus or dividends) to maximize those. That income is deductible. So, there is no personal income tax due now (or potentially ever with an FHSA). If a T4 bonus is used, there is no corporate tax either. The main reason to not fill that unused room now is if you expect a major income bump in the near future – to use it then.

Enable a Low-Income Spouse to Invest

If your tax-sheltered accounts are filled, troublesome debt has been eliminated, and you have a low-income spouse. It can make sense to preserve their income to invest personally. Even in a tax-exposed account. Tax on investment income, particularly eligible dividends can be lower in the bottom tax brackets than even an efficiently running corporation. It also mitigates tax-risk to have some mostly after-tax non-registered investments. Ours has come in handy to fund splurges too – with just a small amount of personal capital gains tax.

This is a long-term income-splitting strategy. I discuss it in more detail elsewhere. Along with important aspects to avoid getting caught up in the attribution rules. One nuance particularly relevant to this article is that a capital dividend to a non-voting shareholder spouse is not subject to TOSI (the dividend-splitting penalty). Just sayin’. The potential pitfall is that it is taxable income for a US-citizen spouse.

I have laid out the details of how a corporate capital gains harvest works. It is not “surplus stripping” (a recently hobbled complicated tax planning maneuver ). Rather, it is simply selling and re-buying an asset. That purposefully realizes the capital gain and resets the book value. That resets the tax liability of the capital gain to zero and it builds from there for the future liability. It also means paying capital gains tax now instead of later. Executing the sale part of the maneuver before June 25th, 2024 means doing this at the current 50% inclusion rate rather than the proposed 66.67% rate. In a personal account, the tax savings are overpowered by compound growth on the capital gains tax deferral over a longer time horizon. However, a corporate account has the added layer of corporate tax deferral and tax integration to consider.

Discussing this with your advisors

Do not execute anything without knowing the final legislation and consulting your advisors. However, you must understand the main variables involved to have that discussion. The net effect is not intuitive. Even to many advisors, because it spans both financial and tax planning, personal and corporate. Plus, it does so across multiple years. The only way I could put it together was to make a simulator to illustrate how different strategies unfold. Using detailed annual tax calculations and an optimal compensation algorithm running in the background.

The common aspects that I have seen experts get stuck on are the following. Realizing capital gains early loses tax deferral. In a personal taxable account, that favors not doing it just to beat the tax-hike, unless you were planning to soon anyway. For corporate capital gains, the CDA and using a capital dividend adds another layer. If tax-deferral is your priority, using a capital dividend can boost corporate tax deferral substantially. How much depends on how much your corporation can decrease the regular taxable income required to meet your needs. Except at the lowest tax brackets, this is more powerful than the loss of tax deferral on the capital gain.

There are multiple variables. Their impact relative to each other is important and situation-specific.

corporation capital gains tax harvest

Is “Keeping it all in the corp” really wise?

Despite modeling showing that using your TFSA and RRSP in addition to a corporation is usually optimal. The dividend-only keep-it-all-in-the-corp approach is still quite common. The passive income rules in 2018 were a shot across the bow. The new changes are another one. Corporations are an easy tax target – in addition to them being tax-exposed. If you have unused tax-sheltered space, a capital gains harvest is an opportunity to fill it at a low cost. No cost in the case of RRSP or FHSA. Spread out your tax risk. Use your tax-shelters. Strongly question advice against that, based on both the math and the tax risks we’ve seen materialize already.

If you have a low-income spouse, use all of the income-splitting strategies appropriate to your situation. A capital gains harvest and capital dividend could super-charge a personal taxable account. Lightly taxed in low-income hands.

Don’t Ignore This & Bet on Future Tax Changes

No one can predict what exactly will happen in the future. However, when governments run massive deficits, they can become a problem that takes decades to unwind. They can be unwound by inflating away debt due to more money being pumped out without an increase in productivity. An alternative ending is increased productivity, growing the revenue base. So far, we’ve seen decreased productivity and increasing tax rates on the existing tax base. That may be counter-productive if it simultaneously reduces the targeted tax-payers adapt their behavior. They have in the past. A higher rate applied to a smaller group doesn’t always equal more. It is complex and not insulated from external shocks either (like supply chain issues, trade wars, physical wars, cyber wars, demographic shifts, etc).

I can’t predict the future either. However, if I were to bet based on history, I would not bet on the proposed capital gains inclusion rate hike dropping back down anytime soon. In the absence of growth, today’s deficits are tomorrow’s taxes. Below is a chart of the capital gains inclusion rate and the Federal deficits. The inclusion rate went to 75% under a Progressive Conservative government after the big government and inflation of the 70s/80s. It was reduced almost a decade later by the Chretien & Martin Liberals. Don’t expect one political party or another to roll back taxes until Canada’s fiscal house is back in order. Getting it in order will be hard.

I would make a plan to deal with the change and not bury my head hoping it goes away soon. Someone has to pay the massive bills, and it is naive to think it will be the ultra-rich. They aren’t stupid and money is mobile.


  1. Still haven’t figured out what i’m doing with these cap gains before June 25… lots of moving pieces

    MNP is quoting about $2k professional fees to clear CDA. I recall you suggesting it should cost less than this?

    1. Hey Tim,

      Costs vary. Generally, with the big national firms, everything costs about double. The usual for a mid-sized firm is $500-1000, but depends on how complicated it is. For example, someone trading all the time would be more than a simple buy and hold investor with a few ETFs. My accountant who recently retired did it as part of my overall taxes. I also made it easier for him by packaging it all nicely though. I have heard of a few thousand for really complex ones.

      1. yeah that’s what i figured, should probably look for new accountants at some point, been in the back of my mind for some time but seems like a pain.

        my CDA is just from switching from XEF to HXDM a while back, one trade, so shouldn’t be that complex

  2. Thanks for all your work. Between this blog post and the money scope episodes, some of this stuff is finally starting to sink into my brain. My immediate response to the proposed capital gains hike was to do nothing, believing I’m still deferring taxation due to my fairly long runway. But I am thinking differently now, given we emptied our TFSA accounts a few years ago to help pay down our large variable rate mortgage with rates quickly rising. I am also starting to think about how we can income smooth together for optimal planning. I have an older physician spouse with a corp as well who is already mandated to collect CPP, so there are lots of moving parts in our situation. So thank you and Ben for all your efforts, it is so valuable. I hope you are enjoying yourself and wonder if you sometimes have to pause your podcast because of intermittent laughing fits. 🙂

    I echo Tim’s sentiments about the accounting costs – I am with one of the big firms and they charged me $1100 just to file the UHT form last year on a rental property within my corp – which is a rental, and by its very definition not “underutilized” at all, and therefore I owed $0. But I digress….

    One question that has come from listening to your podcast with Ben as well as this article is your inclusion of RRSP contributions into the “consumption plan”. Is this because you are including your spouses RRSP contributions? I just send a check directly from my PC account to my brokerage RRSP account as an “employer contribution to employee RRSP”. I was told to do this by my accountant and have never had a problem. Thus I never include RRSP contributions in my personal spending budget as it never enters my personal hands. (Even though it shows on my personal tax return it is immediately deducted so it is a wash for tax purposes).

    Thanks again

    1. Hey Sleepydoc,

      We do try to get our sillies out before recording. It usually takes 30-60 minutes. It doesn’t really matter whether you count the RRSP contribution as from employer or via employee. It is zero corp and zero personal tax either way. I have always just put it with personal because we pay ourselves and contribute. Usually as a lump in January. Also, if I had a bunch of unused room and it were more efficient to use a dividend (due to some RDTOH or something) I might pay that out to myself.

      If there is a bunch of empty TFSA room, a capital gains harvest to shift money from the corp and into there is a win. Minimal tax hit from realizing the gain compared to using regular income to pay out, pay personal tax, and then contribute. A TFSA is also more tax efficient than even the most efficient corporation moving forward. An easy win. Same for those facing a personal loan/mortgage with significant interest rates.

      1. Do you think there is a risk of triggering the GAAR rules if we deliberately harvest in this manner before June 25th?
        I don’t understand why the government would incentivize taking gains now so they can come up with tax monies fast, only to punish us for doing so. But there seems to be a lot of chatter about this out there….


        1. I don’t think so. It is actually paying more tax now. Eventually, it is better. Their stated aim is to give people time to plan whether to sell before or after. Even though it is likely that they want before to get cash now. The problem with the GAAR are that they are so broad that they could be applied to anything. The recent chatter rises from the recent change to basically shift the burden of proof to the taxpayer to prove innocence rather than their need to prove guilt (odd and unfair, but I guess they didn’t like losing cases). This is all well within the rules and there is a good economic argument to diversify your holding risks by spreading them out to more accounts than just a corporation. And to have readily accessible money that isn’t tied up in a corporatin. There – economic argument.

  3. “If you have a debt at 4%/yr and are in a 54% tax bracket, you would need a 9% return to beat that. Good luck finding a 9%/yr risk-free return.”

    Could you clarify how this is calculated? I noticed a similar reference in another LD article arguing that interest on debt would likely need to exceed 8% to make withdrawing extra income sensible for debt repayment. My marginal tax rate is 43.3% and I would be interested to estimate this kind of comparable required investment return against a range of possible interest rates.

    1. Hey Psychedup. Love the handle. That would be a simple and impactful calculator to make. Enter an income that spits out marginal tax rate and get an equivalent pre-tax return for a range of interest rate comparison.

      The formula is: 4%/(1-43.3%)=7.05%. So, a 7% investment return pre-tax to match debt repayment with 4% interest.

  4. Could you please comment on how the calculation changes in the case of impending or actual retirement? After the MedCo is converted to a HoldCo and there’s no active business income, so SBD is not a consideration. It seems that it would make sense to realize the capital gain in the Corp before June 20 (just to make sure that the transaction is completed before the 24th). One can then file the election to clear out the CDA which would provide retirement funds for the next few years. The neRDTOH can then be paid out gradually over the next 2-3 years, perhaps even split with a spouse.Please comment here or address this scenario in the next update. Thanks. This may also simplify estate taxes as it removes the large pending capital gain in the Corp.

    1. Hey TickerDoc. Without active income, it just removes a layer of complexity. It will be easier to make sure that the taxed part and nRDTOH is moved out efficiently over a few years (depending on size). I am running scenarios and will do a series of posts on a bunch of different cases. Being able to dividend split makes it even better. I would contemplate, plan, and conuslt for now – we haven’t seen the legislation yet. That may be partly due to the Government learning new words, like tax integration.

  5. Fantastic work, as always.

    One small typo (I think) early on when you say capital gains harvest “resets the cost basis (book value) of the investment to zero.”

    Would it not reset the book value to market value?

  6. My calculus indicates to me there is a definite benefit to moving some dough out of my corporation and over to my personal side this calendar year. Take that as a given. Some of that dough will come from the sale of stocks that are in an unrealized gain position, and some of it will come from the sale of stocks that are in an unrealized loss position. Essentially, I’m doing some portfolio clean-up. It seems to me I should sell the gains pre-June 25 at 50% inclusion but defer the sale of the losses until after June 25 for the 66% inclusion. This way, losses will be somewhat amplified in the net gain calculation.

    You’re quite tax astute. Do you think I’ve got a one-shot opportunity to take advantage of a tilt in the balance between gains and losses in the net gain equation? Or, will the pointy-headed accountants at CRA likely figure out a way to foil my little gambit?

    1. Hey Brian,

      I am in a similar boat. I cleaned up my portfolio just recently and harvested gains while doing so. If planning that anyway, it seems like a good opportunity compared to after June 25th. In terms of the gains now and losses later, it seemed like they were on to that idea (but vague since no real details have been released). Can’t really hurt though. Best case scenario – a bonus. Worst case scenario – haven’t lost since you were planning on doing it anyway.

      I am still cautiously optimistic that the Feds will acknowledge that not giving a $250K/yr threshold to corporations breaks with tax integration and punishes many middle-class (whatever that means) small business owners. They likely know this, but the question for them will be optics and their voter-base which seems to be their only concern. A simple change like that would preserve tax integration and make things more fair (ironically), but also not give them the one-year revenue bump that they seek (for short-term optics).

    2. Losses will offset gains on a dollar for dollar basis. This is calculated before applying the inclusion rate to the NET capital gain. So it doesn’t matter if you realize losses now or after June 24th.

      1. Good point, but if gains occur before June 25 and losses occur after, which inclusion rate would be applied to the full-year net capital gain? Perhaps I’m missing something fundamental here, but I’d think the net dollar gains realized before June 25 need to be treated separately from the net dollar gains realized afterwards.

        1. The line will have to be drawn somewhere. I suspect it will be this calendar year. Gain before June 25th (50%) and loss in 2025 (66.67%). For corporations, maybe it would be fiscal year related. I am totally guessing since there is no legislation to look at. This government comes out with tax hikes faster than CRA or the accountant community can grapple with them (eg. bare trusts, under-used housing tax, and now this).

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