Why You Might Want a Holding Company in Canada: Obvious and Often-Overlooked Benefits
For Canadian business owners, the holding company structure can be a powerful tool. While it’s often associated with tax deferral, the benefits go well beyond that. Whether you’re a shareholder in an operating company, a real estate investor, or planning your estate, it’s worth exploring how a holding company could support your financial goals.
At our firm, we work closely with entrepreneurs and professionals to tailor corporate structures — like holding companies — to fit their unique circumstances and long-term plans.
The Commonly Discussed Benefits
1. Tax Deferral and Income Splitting Opportunities
A holding company can receive after-tax active business income from an operating company as intercorporate dividends, which are typically tax-free. By leaving the funds in the holdco instead of withdrawing them personally, you defer personal taxes and maintain control over the timing of withdrawals—useful for income smoothing and retirement planning.
Our team helps clients model out different income strategies, optimizing when and how to draw funds, and aligning tax planning with lifestyle goals.
2. Creditor Protection
Holding companies can protect accumulated profits from business risks. By regularly transferring excess cash or investments from the opco to the holdco, you limit exposure to creditors if the operating company faces financial trouble.
We often assist clients in setting up structures that balance legal protection with operational flexibility, ensuring assets are safeguarded without hindering growth.
3. Estate Planning and Multiplying the Lifetime Capital Gains Exemption (LCGE)
When structured properly, a holding company allows for estate freezes and the use of family trusts to multiply access to the LCGE (currently $1,016,836 in 2024) on the sale of qualifying small business shares.
We can guide you through corporate reorganizations, estate freezes, and trust planning to ensure that your family and succession goals are met tax-efficiently.
4. Investment Flexibility
Once funds are in a holding company, they can be invested in a broad range of assets: marketable securities, real estate, or other private businesses. This gives entrepreneurs a flexible platform for building personal or generational wealth.
Our advisory services include helping clients assess investment opportunities within their holdcos, and coordinating with wealth advisors and bankers where needed.
5. Facilitates Business Succession or Sale
Holding companies simplify reorganizations or sales. They allow for more flexible structuring of share sales, asset rollovers, and tax-deferred transactions between family members or third parties.
We’ve helped many business owners prepare for and execute on sales — whether to family, management, or outside buyers — ensuring tax and legal implications are properly managed throughout the process.
Three Underappreciated Benefits of Holding Companies
1. Strategic Use for Bank and Debt Covenants
Many professionals overlook how a holding company can serve as a tool for managing financing relationships. By centralizing retained earnings or non-operating assets in the holdco, the opco's financials can be "leaner"— which can help maintain favorable debt covenants with lenders and improve credit metrics.
We frequently work with clients to structure their companies in ways that support banking relationships, including preparing for covenant negotiations or upcoming financing rounds.
2. Privacy and Discretion in Wealth Building
Holdcos can provide a degree of separation between the individual and the operating company. In cases of high-profile ownership or complex family dynamics, holding companies can be used to quietly build wealth or support family members without making them direct shareholders or disclosing their involvement in the main operating entity.
We understand the importance of discretion and can help set up structures that allow for long-term planning without sacrificing privacy or control.
3. Enabling Internal Rate of Return (IRR) Optimization
A lesser-known tax nuance: holding companies enable more precise control over the internal rate of return on post-tax capital. For long-term planning — especially when comparing reinvestment in the business versus external investments — the ability to defer personal taxes and retain compounding within the corporate environment materially impacts after-tax wealth accumulation over decades.
We can run custom models to help you quantify the long-term financial benefits of using a holdco as part of your broader wealth strategy.
Let’s Talk About Whether a Holdco Makes Sense for You
While holding companies are popular for good reason, they aren’t always the right solution — and how you implement one matters just as much as whether you do. If you’re thinking about how to better protect your assets, grow your wealth, or plan for succession, we’d be happy to explore whether a holdco fits into your overall strategy.
Reach out to our team today to schedule a conversation. We’ll help you understand the options, map out the implications, and put the right plan in place.
