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Corporate:(small business) taxed at 21% I believe from KPMG Tax letter but an accountant told me all capital gains are at the much higher non small business rate. Any knowledgeable folks out there on this?

The small business rate only applies to active business income earned by qualifying corporations. Capital gains and losses are investment income (passive rather than active) and therefore do not qualify for the lower rate.

The tax rules are set up so that by the time investment income earned in a corporation is paid out to the shareholder, the individual is in almost the same position as if they had earned the income personally. It doesn't work out perfectly because the provinces have different tax rates, but it's pretty close in all cases. (By the time you add on the hassel and legal and accounting costs to incorporate, and file corporate returns in addition to your individual returns, most people are probably better off to invest as an individual).

There used to be a tax deferral opportunity by investing through a corporation, because the corporate tax rate on investment income is still lower than the individual rate. By earning investment income in a corporation and not paying it out right away, you could defer some of the tax.

That opportunity no longer exists. Now the corporation has to pay an extra refundable tax on top of the regular corporate tax. The effect is to make the corporation pay pretty much the same tax that an individual would have to pay. The corporation gets the extra tax back when it finally pays a dividend to the shareholder.

So why do you still see very rich people investing through corporations? Probate fees. Instead of passing individual investments on to their heirs, they just pass the shares of the investment corporation - which in many cases does not need to go through probate.

Unless you are very wealthy, the cost to set up and administer an investment company are probably higher than the probate fees that would apply on your death.

Sorry for the long post - there is no such thing as a quick tax answer.

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