After two years of policy whiplash, 2025 ends on unusually stable ground for tax planning — and that stability is itself the opportunity. The proposed capital gains inclusion-rate increase was cancelled on March 21, 2025, leaving the familiar 50 per cent inclusion rate in place, while the enhanced $1.25 million lifetime capital gains exemption was retained. For BC corporations with calendar year-ends, that means you can plan dispositions, compensation, and capital spending against settled rules rather than a moving target. The task before December 31 is to use that clarity deliberately: optimize the salary-and-dividend mix, time income and deductions, and account for the real cost of CPP2 in its second year.
Year-end planning is not about aggressive manoeuvres. It is about making the routine timing and structuring decisions on purpose, while you still can, rather than discovering their consequences when the T2 is prepared months later.
The settled landscape: what is no longer uncertain
For two tax seasons, owners hesitated over capital gains because the inclusion rate was a proposal in motion. That is over. The increase was cancelled, the inclusion rate remains at 50 per cent, and the $1.25 million LCGE on qualifying small-business shares stands and begins indexing to inflation in 2026 — reaching $1,275,000 for that year.
The practical effect is that you can act on dispositions without hedging against a rule change. If you were holding off selling an asset, crystallizing a gain, or reorganizing because you feared a higher inclusion rate, that fear is resolved. The November 4, 2025 federal budget confirmed no changes to general or small-business corporate rates and added targeted incentives — including temporary immediate expensing for certain manufacturing and processing buildings and significantly expanded SR&ED credits, including a new $6 million annual expenditure limit replacing the prior $3 million cap — but it left the core planning framework intact.
BC's corporate rates remain stable too: a CCPC pays a combined 11 per cent on its first $500,000 of active business income (2 per cent provincial plus 9 per cent federal), and 27 per cent on income above the small-business limit. Those rates anchor every timing decision below.
Salary versus dividends: a worked example
The perennial owner question is how to pay yourself, and the answer shifts with CPP costs and your personal situation. CPP2 — the second additional CPP contribution — is now in its second year, applying to earnings between the YMPE of $71,300 and the YAMPE of $81,200 for 2025, a $9,900 band that costs the employee up to $396 and the employer a matching $396.
Consider Burnaby Industrial Services Ltd., a fictional but realistic BC CCPC whose owner needs about $130,000 of personal cash for 2025.
Scenario A — salary. Paying a $130,000 salary makes the full amount deductible to the corporation, generates RRSP room (18 per cent of earned income), and builds CPP entitlement. But it triggers the full CPP cost on both tiers: the corporation pays its employer share of base CPP plus the $396 of CPP2, and the owner pays the matching personal contributions. Salary also draws into BC's Employer Health Tax once total payroll crosses the $1 million exemption. The trade-off is real tax integration and retirement savings room in exchange for higher payroll cost.
Scenario B — dividends. Paying $130,000 as dividends avoids CPP entirely on both tiers — saving roughly $800 of combined CPP2 alone, and considerably more across base CPP — and avoids EHT exposure. But dividends are not deductible to the corporation, generate no RRSP room, and build no CPP entitlement. For an owner who values RRSP contributions and future CPP benefits, that is a meaningful give-up.
For most established owners the answer is a deliberate blend: enough salary to maximize RRSP room and maintain CPP, with the balance as dividends. The right split depends on the owner's age, retirement plan, and whether payroll is already near the EHT threshold — which is exactly why it is a planning decision, not a default.
Timing moves to consider before December 31
A handful of classic levers remain effective, and several are sharpened by this year's incentives:
- Capital purchases and immediate expensing. Equipment placed in service before year-end is eligible for CCA in the current year, and qualifying manufacturing and processing assets may benefit from the reintroduced immediate expensing — a 100 per cent first-year deduction that pulls the tax benefit forward. If a purchase is coming anyway, the timing can matter.
- Bonus accrual. A bonus declared before year-end and paid within 179 days is deductible in the current year while taxable to the recipient next year, a useful tool for managing the corporation's income against the $500,000 small-business limit.
- Realize or defer gains on purpose. With the inclusion rate settled at 50 per cent, decide whether to trigger or defer a gain based on your actual cash and tax position, not on rate speculation.
- Manage passive investment income. Adjusted aggregate investment income above $50,000 begins eroding the small-business deduction, and it is fully eliminated at $150,000. Review the corporation's passive income before year-end to protect access to the 11 per cent rate.
- Top up RRSP and TFSA room generated by this year's compensation, and confirm any planned charitable gifts are made before December 31.
Should you pay a dividend before or after year-end?
A frequently overlooked timing lever is when in relation to year-end you declare and pay dividends, because the choice affects the owner's personal tax year, not the corporation's. A dividend paid in December falls into the current personal tax year; the same dividend paid in early January falls into the next. For an owner whose personal income is already high this year — perhaps from a property sale or a strong bonus — pushing a dividend into January can keep this year's marginal rate lower and spread income across two years. Conversely, an owner expecting a much higher-income following year may prefer to pull dividends into December at a lower current rate. The corporation's deduction position is unaffected either way, since dividends are never deductible, so this is purely a personal-tax-year decision. It is also a reminder that owner and corporation are two taxpayers whose years should be planned together: the most efficient outcome is rarely the one that optimizes only one of them. Where a spouse or adult family member holds shares and is genuinely involved in the business, splitting dividends across lower-income shareholders — within the tax-on-split-income rules — can further reduce the household's overall burden, but the rules here are technical and worth confirming before acting.
Do not forget the cash and compliance calendar
Year-end planning is also a moment to confirm the basics: that GST and PST remittances are current, that payroll source deductions reconcile, that T4 and T5 preparation is on track for the late-February deadline, and that the corporation's instalments are sized correctly so you neither overpay nor incur arrears interest. The lower-rate environment — with the policy rate at 2.25 per cent entering the new year — makes financing any year-end tax payment cheaper than it has been in years, but that is a reason to plan the payment, not to ignore it.
Key takeaways
- The capital gains increase was cancelled; plan dispositions against the settled 50 per cent inclusion rate and the retained $1.25 million LCGE, now indexing from 2026 (to $1,275,000 for that year).
- The salary-versus-dividend choice turns on CPP2 cost (up to $396 each side for 2025), RRSP room, EHT exposure, and retirement goals — usually a deliberate blend, not a default.
- Time capital purchases to capture CCA and, where eligible, reintroduced immediate expensing on manufacturing and processing assets.
- Watch passive investment income: above $50,000 it erodes the small-business deduction and the 11 per cent combined rate.
- Use the stability to plan on purpose — bonuses within 179 days, instalment sizing, and the T4/T5 close-out — rather than reacting at filing time.
Certainty is a planning asset; the businesses that benefit most from a settled tax year are the ones that act on the calendar instead of waiting for the return.
If you want your 2025 year-end moves structured deliberately — compensation, capital timing, and small-business-rate protection — RN Canada's advisory and fractional CFO team helps BC corporations plan before December 31, not explain after. We would be glad to talk it through.