Taxation cases: owners, corporations and transactions

Taxation appears in Canadian cases in two ways. Every case has breadth opportunities in tax, often small ones: an owner who wants to pay herself, a sale of assets, a new employee benefit, a GST/HST registration question. Candidates who choose the Taxation role must also show depth, with larger tax issues such as reorganizations, the sale of a business or family planning. This lesson shows how tax issues appear in cases and how to analyse them under time pressure, using the Brandt family and Brandt Aerial Inc. from ACCT-351 and ACCT-352. The technical rules were taught in those courses. Tax rates and thresholds below are those used in ACCT-351 and ACCT-352 for 2026, checked in October 2026.

How tax issues appear

Tax issues are almost always signalled by a transaction or a plan rather than by a direct question. The owner wants to take money out of the company. The company plans to sell a division. A shareholder wants to retire and pass the business to her children. The company is buying equipment and asks about the timing. An employee is being given a car. A new line of business sells services to customers in another province. For each, ask: who is the taxpayer, what is the transaction, what is the tax consequence, and is there a better way to achieve the same goal? That four-part question structures most tax analysis in a case.

Know where the large numbers are. A sale of shares that qualifies for the lifetime capital gains exemption, which is 1,275,000 dollars for 2026, can save hundreds of thousands of dollars of tax; whether the shares meet the qualified small business corporation share tests is therefore worth careful analysis. A salary-versus-dividend decision on a modest amount, by contrast, usually produces a difference of a few thousand dollars and deserves a short analysis with the non-tax factors. Calibrate depth to the dollars at stake and to whether the client asked.

Owner-manager remuneration

The most common tax issue in a case is how an owner-manager should take money from a Canadian-controlled private corporation. Salary is deductible to the corporation and taxed as employment income to the owner; it creates registered retirement savings plan room and requires Canada Pension Plan contributions, which also earn pension benefits. Dividends are paid from after-tax corporate income; non-eligible dividends from income taxed at the small business rate carry a gross-up and a dividend tax credit designed so that the total corporate and personal tax roughly equals the tax on salary. This is the principle of integration, and ACCT-352 showed that it is close but imperfect. The program below compares salary and dividends for 50,000 dollars of pre-tax profit in Brandt Aerial Inc., a Manitoba corporation, using the 9 per cent federal small business rate and Manitoba's 0 per cent rate for 2026, and assumed personal rates that you would replace with the case data.

# Brandt Aerial Inc. (from ACCT-352): salary or dividend for 50,000 dollars of pre-tax profit.
# Federal small business rate 9%, Manitoba 0% (2026); personal rates are an
# illustrative assumed combined marginal rate, not a computed return.
profit = 50000
corp_rate = 0.09
salary_personal = 0.3790          # assumed combined marginal rate on salary
ineligible_div_rate = 0.3600      # assumed combined rate on non-eligible dividends
cpp_cost = 0.0                    # ignore CPP for the comparison; mention it in the response
salary_net = profit * (1 - salary_personal)
after_corp = profit * (1 - corp_rate)
dividend_net = after_corp * (1 - ineligible_div_rate)
print(f"Pay as salary: keep {salary_net:,.0f}")
print(f"Pay as dividend: corporate tax {profit * corp_rate:,.0f}, then keep {dividend_net:,.0f}")
print(f"Difference {dividend_net - salary_net:+,.0f}; integration is close but not perfect")
print("Also weigh: RRSP room from salary, CPP benefits, TOSI if family members are paid")

Pay as salary: keep 31,050
Pay as dividend: corporate tax 4,500, then keep 29,120
Difference -1,930; integration is close but not perfect
Also weigh: RRSP room from salary, CPP benefits, TOSI if family members are paid

With these assumptions, salary leaves Leah about 1,900 dollars more than dividends. The exact difference depends on the personal rates, the province and Leah's other income, and in a case you would use the rates given. The more important part of the answer is the list of non-tax factors: salary creates RRSP room and CPP benefits but costs CPP contributions on both sides; dividends do not; dividends paid to family members who are not active in the business are subject to the tax on split income (TOSI) at the top rate unless an exclusion applies; and a lender may want to see salary as stable income. A recommendation that combines salary up to a target RRSP room with dividends for the rest is common and defensible, provided you show why.

Transactions: purchase and sale of a business

When a business is bought or sold, the buyer usually prefers to buy assets, because it gets a cost base equal to the price, can claim capital cost allowance on depreciable property and leaves historical liabilities behind. The seller usually prefers to sell shares, because a gain on qualified small business corporation shares may be sheltered by the lifetime capital gains exemption, only half the gain is taxable in any case, and the sale is simpler. In a case, identify the competing preferences, quantify them where the facts allow and suggest how the price might reflect them: a buyer who agrees to buy shares may negotiate a lower price to compensate for the lost tax benefits. Also look for the conditions that would make shares qualify: the 24-month holding period, the 50 per cent asset test over that period and the 90 per cent test at the time of sale, which may require purifying the corporation of passive assets beforehand.

Rollovers are the other common transaction issue. Section 85 lets a taxpayer transfer property to a corporation at an agreed amount between the property's cost and fair market value, deferring the gain, as Leah did when she transferred her drone business to Brandt Aerial Inc. in ACCT-352. Other provisions allow share-for-share exchanges, reorganizations of capital and amalgamations. In a case you rarely need the detailed computations; you need to recognize when a rollover is available, what it achieves and what the key conditions are, such as taking back shares as part of the consideration and filing the election on time.

Corporate tax issues

Corporate tax issues in cases include the small business deduction and its business limit, which is ground down when associated corporations have large passive investment income or taxable capital; the taxation of investment income in a CCPC through the refundable tax system; the capital dividend account; capital cost allowance and the investment incentives available for some property; and the deductibility of specific expenses. In a case you will seldom be asked to compute a full T2 return, but you may be asked how a planned investment affects the small business deduction or how much tax a dividend from a holding company would trigger. Keep to the main effect and state it in dollars where you can.

Commodity taxes are a frequent breadth opportunity. A business that exceeds the 30,000 dollar small supplier threshold over four consecutive calendar quarters must register for GST/HST, charge tax at the rate for the place of supply and file returns; it can claim input tax credits on its purchases. A case that mentions new sales to customers in another province, or a new service business, is often signalling a GST/HST point. Two or three sentences on registration, the applicable rate and input tax credits usually earn the marks.

Tax planning, avoidance and ethics

Some cases include a client who wants a tax result that crosses a line. Legitimate planning arranges affairs within the law to reduce tax; abusive avoidance relies on transactions that defeat the object and spirit of the provisions, which the general anti-avoidance rule (GAAR) targets. The 2024 amendments to GAAR added an economic substance test and a penalty, and the mandatory disclosure rules require reporting of certain transactions. Evasion, such as not reporting cash sales, is a crime. A CPA must not associate with false information or assist in evasion, and must follow the CPA Code's rules on integrity. In a case, identify the line, explain the risk and recommend the professional response: decline, disclose, or propose a legitimate alternative.

Tax issues often have an ethics dimension that is not obvious at first. A client who asks you to backdate a section 85 election, to record a personal expense through the company, or to pay a spouse a salary for work she does not do is asking you to participate in a misstatement. Name it plainly and recommend what to do; markers credit a short, firm professional response.

Integrating tax with other areas

Tax conclusions affect valuation (after-tax cash flows), financing (interest deductibility), financial reporting (current and deferred taxes, uncertain positions) and strategy (where and how to grow). In a sale case, the buyer's valuation depends on the tax structure; in a capital investment case, capital cost allowance and investment incentives change the net present value, as lesson 8 shows. Make at least one link explicit in your response.