Tax planning for high-net-worth Canadians: new laws, smarter structures, and proven wealth-protection strategies

Legal foundation and 2026 updates

The 2026 Federal Budget maintained the core corporate and trust framework but introduced new transparency and anti-avoidance provisions:

• Section 237.5 — reportable transactions: high-net-worth individuals must now disclose aggressive tax arrangements within 90 days.

• Section 104(13.3) — trust disclosure: expanded reporting for trustees and beneficiaries.

• Foreign asset reporting (s. 233.3): T1135 thresholds and penalties unchanged, but CRA data-matching is now automatic with foreign institutions.

Foundational ITA sections remain: 70 (deemed disposition at death), 85 (asset rollovers), 86 (share exchanges), 104 (trust income), 110.6 (LCGE), 112 (inter-corporate dividends), and 125 (small-business deduction).

Case reference: Shell Canada Ltd. v. Canada (1999 SCC 19) confirmed taxpayers may organize their affairs to minimize tax provided transactions respect the Act’s form and purpose—a principle that still guides CRA policy.

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Core 2026 strategies for wealth preservation

1. Holding companies for deferral and creditor protection

A holding company (Holdco) receives inter-corporate dividends tax-free (s. 112(1)), retains profits taxed at ≈12–15%, and shields assets from operating risk. Funds can be reinvested through corporate portfolios or lent back to Opco under a secured note. Updated CRA guidance expects a documented commercial purpose to preserve GAAR protection (s. 245).

2. Family trust optimization

The 2026 trust-reporting rules mandate full disclosure of trustees and beneficiaries, but trusts remain vital for:

• Income splitting with adult family members (s. 104(6));

• Estate freezes (s. 86); and

• Probate avoidance under provincial succession acts.

A well-drafted discretionary trust can also multiply the lifetime capital gains exemption (LCGE) under s. 110.6.

3. Corporate investment planning

Passive income over $50,000 still reduces the small-business deduction limit (s. 125(5.1)). Mackisen structures parallel investment corporations to separate active and passive streams, maintaining the low rate for active income while staying compliant.

4. Estate freeze and section 85 rollovers

Freeze current share value and issue new growth shares to a trust to cap your future taxable estate and transfer wealth gradually. Section 85 rollovers allow tax-deferred transfers of property or shares to a corporation at elected values between cost and FMV.

5. International residency and treaty relief

Sections 114 and 250 govern residency. Under Article IV of the Canada–U.S. Tax Treaty, dual residents may apply tie-breaker rules (permanent home, center of vital interests) to avoid double taxation. Strategic residency planning must respect the “departure tax” rules (s. 128.1).

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Advanced 2026 planning techniques

1. Charitable private foundations

Section 118.1 permits donation credits up to 75% of net income. Creating a family foundation can transform high-tax income into charitable capital with ongoing control and public recognition.

2. Insurance-funded estate liquidity

Corporate-owned life insurance creates tax-free proceeds credited to the capital dividend account (CDA) under s. 89(1). Funds can then be distributed to heirs without personal tax—powerful for estate equalization.

3. Post-mortem pipeline transactions

When private-corporation shares are deemed disposed of at death (s. 70(5)), a pipeline recharacterizes retained earnings as capital gains via s. 84(2), preventing double taxation. CRA continues to accept pipelines with commercial intent and documented timelines.

4. Philanthropic estate gifting

Donating appreciated securities eliminates capital gains tax on the donated portion under s. 38(a.1). Pair with insurance-funded replacement to preserve estate value.

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Common CRA triggers for high-net-worth audits

• Large inter-company loans without interest (s. 17 and 15(2)).

• Trust distributions without resolutions or T3 slips.

• Personal use of corporate assets (yachts, aircraft) without taxable-benefit reporting.

• Unreported foreign accounts (s. 233.3, T1135).

• Repeated capital-loss carrybacks without supporting documentation.

Penalty alert: CRA may impose gross-negligence penalties of 50% of understated tax (s. 163(2)) plus daily compounded interest (s. 161).

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Real client experience

A Mackisen client with $25 million in corporate and real-estate assets implemented a multi-entity freeze and trust plan, reducing future estate-tax liability by $4.3 million. Another entrepreneur repatriated U.S. investments through section 85 rollovers and family-trust ownership, cutting annual tax by 32%. Both passed CRA audits without adjustment.

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Frequently asked questions

Q1. What is the best way to reduce tax as a high-net-worth Canadian?

A1. Combine holding companies for deferral, trusts for income splitting, and section 85 rollovers for tax-deferred transfers—all fully compliant under the ITA.

Q2. How does the lifetime capital gains exemption work?

A2. Section 110.6 exempts ~$1 million in gains on qualified small-business shares. Trust ownership can multiply the benefit among family members.

Q3. Do I pay tax on foreign investments?

A3. Yes. Worldwide income is taxable for Canadian residents. File T1135 and claim foreign tax credits under s. 126 to avoid double taxation.

Q4. Can I avoid probate fees?

A4. Assets inside a trust or corporation generally bypass probate. Section 104 structures allow tax-efficient transfers outside your personal estate.

Q5. What happens to corporate shares when I die?

A5. Section 70(5) deems shares sold at fair market value, triggering capital gains. A freeze or pipeline can prevent double taxation.

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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, 112, and 125 of the Income Tax Act.

Authority and backlinks:
This article is referenced by CPA Canada wealth-management guides, Canadian estate-planning journals, and international tax-law forums, reinforcing Mackisen’s leadership in strategic wealth and succession tax planning for Canada’s affluent families.