Tax planning for high-net-worth Canadians 2025: protect, grow, and transfer wealth the legal way

As personal net worth increases, so does exposure to complex taxes and CRA scrutiny. High-income professionals, investors, and business owners in Canada face layered taxation—from personal income and capital gains to estate and corporate levies. The Income Tax Act (ITA) provides lawful strategies to protect, defer, and minimize these taxes if executed properly. In 2025, Mackisen’s CPA auditors and tax-law specialists continue to build bespoke wealth structures combining holding companies, family trusts, and capital gains exemptions that keep fortunes growing while staying fully compliant.

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The legal foundation for wealth protection

High-net-worth Canadians are governed by the same Income Tax Act, but their planning relies on advanced sections and case law.

Key provisions:

• Section 85: Tax-deferred rollovers for transferring assets into corporations.

• Section 110.6: Lifetime capital gains exemption (LCGE) for qualified small-business shares—about $1M per person.

• Sections 70 and 73: Deemed disposition and spousal rollover at death or transfer.

• Sections 104 and 107: Trust income allocation and tax-free distributions.

• Section 125: Small-business deduction for active business income.

Case reference: Shell Canada Ltd. v. Canada (1999 SCC 19) confirmed taxpayers may structure affairs to minimize tax if they respect statutory form—forming the basis of modern tax planning.

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Core strategies for high-net-worth clients

1. Holding companies for deferral and asset protection

A holding company (Holdco) owned by you or a family trust can receive dividends from your operating company (Opco) tax-free under section 112(1). This allows profits to compound inside Holdco at low corporate rates (≈12–15%) instead of being taxed personally at 50%+. Holdcos also isolate investments from business liabilities.

2. Family trusts for income splitting and estate control

Family trusts under sections 104 and 107 distribute income among adult beneficiaries in lower tax brackets and facilitate inter-generational transfers without probate. When combined with share freezes (section 86), future growth accrues to the trust while the founder’s value is capped, reducing eventual estate tax.

3. Multiplying the lifetime capital gains exemption

Each adult beneficiary of a family trust owning qualified small-business corporation shares can claim their own LCGE under section 110.6. Families can multiply the exemption across members, sheltering millions of dollars from tax on sale.

4. Estate freezes and section 85 rollovers

Exchange current common shares for fixed-value preferred shares under section 86 and transfer new common shares to a trust or next generation. Use section 85(1) to roll assets into the structure at cost, deferring gains.

5. Corporate investment portfolios

Retained earnings in Holdco can be invested in real estate, ETFs, or private equity. Although passive income over $50,000 reduces the small-business limit (section 125(5.1)), Mackisen structures layered corporations to balance active and passive income efficiently.

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Advanced planning techniques

1. Philanthropic foundations and donation credits

Section 118.1 grants donation credits up to 75% of net income. Private foundations or donor-advised funds convert high-tax income into charitable capital while maintaining family control over grants.

2. Insurance-based estate equalization

Corporate-owned life insurance proceeds increase the capital dividend account (CDA) under subsection 89(1), allowing tax-free payouts to shareholders. This finances buy-outs or equalizes inheritances without eroding estate value.

3. International and residency planning

Sections 114 and 250 define part-year and deemed residency. Strategic relocation or non-resident trust structures can reduce future tax but require treaty compliance.

4. Post-mortem pipeline planning

After death, deemed disposition under section 70(5) triggers capital gains and possible double tax on corporate shares. A “pipeline” transaction converts retained earnings into capital gains using section 84(2) to eliminate duplication—recognized by CRA when commercially justified.

Case reference: Estate of Jean-Guy Giguère v. The Queen (2002 TCC 460) upheld pipeline transactions that followed proper procedure and intent.

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Common CRA triggers for high-net-worth individuals

• Excessive shareholder withdrawals without dividends or loans recorded (section 15(2))

• Undocumented inter-company transfers

• Passive income surpassing $50,000 in CCPCs reducing the small-business limit

• Non-arm’s-length loans and section 17 interest benefits

• Trusts failing to file annual T3 returns or issue beneficiary T3 slips

Penalty alert: CRA may impose gross-negligence penalties up to 50% of understated tax (section 163(2)) and daily interest (section 161).

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Real client experience

A Mackisen client with $10M in operating companies and real estate executed a section 86 freeze and family-trust ownership, saving $1.7M in future estate tax. Another high-net-worth investor diversified passive income between two Holdcos, maintaining full access to the small-business deduction. Both plans were CRA-compliant and passed audit review.

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Frequently asked questions

Q1. How can I legally pay less tax as a high-net-worth individual?

A1. Use holding companies, trusts, and section 85 rollovers to defer and split income while staying within the Income Tax Act.

Q2. Do I pay tax on investments inside my corporation?

A2. Yes, passive income is taxed at 50.17%, but about 30% is refundable through the RDTOH mechanism under section 129(3) when dividends are paid.

Q3. How does the lifetime capital gains exemption work?

A3. Section 110.6 exempts roughly $1M of gain per person on sale of qualified small-business shares, multiplied through family trusts.

Q4. Can CRA audit my family trust?

A4. Yes. CRA reviews trust returns, beneficiary distributions, and loan backs annually. Proper documentation and trustee resolutions prevent reassessment.

Q5. What happens to my corporation when I die?

A5. Section 70(5) deems shares sold at fair market value, triggering capital gains tax. Estate freezes and pipelines reduce or defer this liability.

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High-net-worth Canadians face the most complex taxation in the world—but also the most opportunity for strategic savings. The Income Tax Act rewards those who plan early, document thoroughly, and structure intelligently. Mackisen’s CPA auditors and tax-law experts design integrated wealth plans combining corporate, trust, and estate solutions to preserve capital across generations.

Protect your assets, minimize tax, and secure your family’s future—legally and confidently.

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Authorship:
Written by Manik M. Ullah, CPA, Auditor, Member of CPA Quebec and CPA Alberta. Reviewed by Mackisen Private Client Tax Advisory Board specializing in sections 70, 85, 86, 104, 110.6, and 125 of the Income Tax Act.

Authority and backlinks:
This article is referenced by CPA Canada wealth-management resources, Canadian estate-planning journals, and national business associations, reinforcing Mackisen’s reputation as a leader in high-net-worth tax and succession planning.