With a calendar year-end approaching, every British Columbia corporation has a narrow window to make decisions that meaningfully change its 2022 tax bill — but those decisions must be made before December 31, not in February when the books are reconciled. What makes 2022 different is the backdrop: inflation that peaked at 8.1 per cent in June, a Bank of Canada policy rate that has marched from 0.25 per cent in January to 3.75 per cent by late October, and a rising CRA prescribed interest rate on amounts owing. In this environment, the timing of income, deductions, and capital spending matters more than in a quiet year, because the cost of getting cash flow wrong has gone up.
This is a planning checklist for incorporated BC owners. None of it is a substitute for advice on your specific facts, but it should sharpen the questions you bring to your accountant before the year closes.
The corporate rate structure you are planning against
A Canadian-controlled private corporation (CCPC) in BC pays roughly 11 per cent combined federal and provincial tax on active business income that qualifies for the small business deduction — the federal small business rate of 9 per cent plus BC's 2 per cent provincial rate — on the first $500,000 of active business income. Income above that limit, or income that does not qualify, is taxed at the general combined rate of about 27 per cent (15 per cent federal plus 12 per cent BC). Two-thirds of the planning that follows is really about controlling which dollars fall into which bucket, and when.
Should you take salary or dividends this year?
The salary-versus-dividend decision is the centrepiece of owner tax planning, and 2022's environment nudges the analysis in specific ways.
- Salary is deductible to the corporation, creates RRSP room, generates CPP contributions (and CPP benefits), and is taxed personally as employment income. In a year where you may want to reduce corporate income that would otherwise be taxed at the general rate, a reasonable salary or year-end bonus can be efficient.
- Dividends are paid from after-tax corporate profits, carry no CPP cost, and are taxed personally at dividend rates. They preserve corporate cash differently and can be timed across calendar years.
There is no universal answer; the right mix depends on your personal income needs, your corporation's profit level, RRSP and CPP considerations, and integration. What matters at year-end is that the decision is made deliberately and documented, not left to default.
A worked example: timing a year-end bonus
Consider Pacific Cabinet Works, a hypothetical BC CCPC expecting roughly $620,000 of active business income for 2022 — about $120,000 above the $500,000 small business limit, which would otherwise be taxed at the general ~27 per cent rate.
Scenario A — Do nothing. The $120,000 above the limit is taxed at roughly 27 per cent corporately, costing about $32,400 in corporate tax on that slice.
Scenario B — Accrue a year-end bonus. The owner accrues a $120,000 bonus before year-end (payable within 179 days, as the rules require). The bonus is deductible, pulling corporate income back to the $500,000 limit so that all retained active income is taxed at the ~11 per cent small business rate. The $120,000 is instead taxed in the owner's hands as employment income at their personal marginal rate.
Whether Scenario B is genuinely better turns on the owner's personal marginal rate versus the 27 per cent corporate rate, plus CPP cost and the value of deferral. The point of the exercise is that this lever only exists before December 31 — and ignoring it simply locks in the general-rate corporate tax. Run the comparison with your accountant on your actual numbers.
Can you accelerate deductions through capital spending?
If your business needs equipment, vehicles, or technology, the timing of those purchases is a tax lever. Two mechanisms matter for 2022:
- Immediate expensing. A temporary measure allows CCPCs to immediately expense up to $1.5 million of eligible depreciable property per year, for property acquired after April 19, 2021 and available for use before 2024. The half-year rule does not apply. For a profitable corporation, this can convert a capital purchase into a full current-year deduction — but the asset must be available for use by year-end, not merely ordered or paid for.
- Capital cost allowance (CCA). For property outside the immediate-expensing measure, ordinary CCA rules apply, and assets available for use before year-end can begin generating deductions this year.
The discipline here is to separate genuine business need from tax tail-wagging-dog. Buying equipment you do not need to save tax is a poor trade. But pulling a planned, necessary purchase forward so it is available for use by December 31 can be entirely sound — especially when financing it at 2022 rates means you also want to be deliberate about the cash.
Other year-end moves worth reviewing
- Bonus accruals. As above, accrued bonuses are deductible in 2022 if paid within 179 days of year-end (before the 180th day), allowing the deduction now and the personal tax next year.
- Review your inventory and bad debts. Write down obsolete inventory and recognize genuinely uncollectible receivables before year-end to claim the deductions.
- Prepaid expenses and timing. Understand which prepaids are deductible when, and time discretionary spending accordingly.
- Charitable donations and eligible expenditures made before year-end land in 2022.
- RRSP and TFSA room on the personal side, coordinated with your remuneration decision.
- Instalments and the prescribed rate. With the CRA prescribed rate on overdue amounts having risen to 7 per cent for the fourth quarter of 2022, the cost of underpaying instalments is higher than it has been in years. Confirm your instalments are adequate to avoid expensive arrears interest.
Does the high-inflation, high-rate environment change your year-end planning?
In a quiet year, year-end planning is largely mechanical. In 2022, the macro backdrop shifts a few of the trade-offs in ways worth naming:
- Deferral is worth more when interest rates are high. A dollar of tax deferred to a later year is a dollar you do not have to finance on a line of credit costing 6 per cent or more in the meantime. Strategies that legitimately defer tax — such as a bonus deductible in 2022 but taxable to the owner in 2023 — carry a slightly larger cash benefit than they did in a low-rate world. Quantify the deferral, not just the rate arbitrage.
- Capital purchases compete with debt paydown. Immediate expensing makes equipment purchases tax-attractive, but in 2022 that capital often has to be financed at higher rates, and the alternative use of cash — paying down expensive floating-rate debt — now offers a strong, certain return. Weigh the after-tax cost of the financed purchase against the guaranteed return from retiring debt. The tax deduction is real, but it is not the only number in the equation.
- Inflation has inflated your nominal income. Many BC corporations are reporting higher nominal revenue and profit simply because prices rose, which can push more income above the $500,000 small business limit and into the general rate. That makes the income-smoothing levers above more valuable this year than last — but it also means you should confirm your instalments reflect the higher income, or face arrears interest at the elevated prescribed rate.
The broader point is that 2022's year-end planning cannot be done in a tax silo. The cost of cash, the cost of debt, and the timing of tax are now tightly linked, and the best decisions are made looking at all three together.
Key takeaways
- Year-end decisions that change your 2022 tax must be made before December 31 — map your expected income against the $500,000 small business limit now.
- Salary versus dividends and year-end bonus accruals are powerful levers, but the right mix depends on your personal rate, CPP, and integration; decide deliberately and document.
- Immediate expensing lets CCPCs fully deduct up to $1.5 million of eligible property — but only if it is available for use by year-end, not merely ordered.
- Clean up inventory, bad debts, and prepaids before year-end to capture available deductions.
- With the CRA prescribed rate at 7 per cent for Q4 2022, ensure instalments are adequate; arrears interest is more painful than ever.
Tax planning is a calendar discipline, not an accounting one — the deductions you forfeit are the ones you noticed in February.
If you would like a year-end review that turns these levers into a concrete plan for your corporation, RN Canada's advisory team can help. Talk to us about fractional CFO and tax-planning support for BC businesses before the year closes.