When your incorporated business sells capital assets (like equipment, property, or investments), the capital gain is taxed at the corporate level, not the personal level. In Canada, your corporation includes 50% of the capital gain as taxable income, and that amount is taxed at your corporation's marginal tax rate. This means the after-tax cost of a capital gain depends on your business's income level and province, which makes planning crucial for business owners. When you own a business as a sole proprietor, capital gains flow through to your personal tax return. But when your business is incorporated, the situation changes: - The corporation itself realizes the capital gain - 50% of the gain becomes corporate taxable income (the inclusion rate for 2026) - The corporation pays tax on that amount at the small business rate or general corporate rate - You don't pay personal tax on the gain unless you take money out as a dividend This creates a layer of taxation. Your corporation pays tax first, and if you want the remaining money, you'll need to declare a dividend, which triggers a second layer of tax at the personal level. Here's where it gets interesting.
No. The small business deduction only applies to active business income earned by a Canadian-controlled private corporation. Capital gains are taxed at the full corporate tax rate (roughly 26% to 27% depending on province), not the lower SBD rate (11% to 13%).
A personal capital gain is taxed only at your marginal tax rate once. A corporate capital gain is taxed first at the corporate rate, and if you withdraw it as a dividend, you pay personal tax again. This double taxation is the integration failure for capital gains in Canada.
No. Capital losses in a corporation can only be used to offset capital gains in that corporation. Unlike personal capital losses, corporate capital losses cannot reduce employment or business income. Unused corporate capital losses can be carried back three years or forward indefinitely to offset future capital gains.
That depends on your overall tax situation, your province, and your future plans for the asset. Generally, holding investment real estate personally may be more tax-efficient because you can claim the principal residence exemption if eligible, and you avoid the integration problem. An accountant can compare both scenarios for your specific numbers.
You report the sale on Schedule 8 of your corporate tax return. You'll calculate the gain as the sale price minus the adjusted cost base (ACB). If you had claimed capital cost allowance (CCA) deductions on the equipment, you may also have recapture or a terminal loss to report on Form T2125 (for sole proprietors) or within the corporation's CCA calculations.