Have you ever wondered how the ultra wealthy are able to evade taxes legally and keep more of their money? This is question particularly apropos during tax season, when many Canadians may be looking for ways to lower their bill — or even get some money back.
A recent analysis identifies three key strategies the wealthy use to reduce their taxes: incorporating to pay a lower corporate rate, using the "buy, borrow, die" approach to defer capital gains and tax-loss harvesting to offset gains (1).
But could these strategies be adapted for households with more typical incomes? While not all will apply, some may actually be accessible to middle- and upper-middle-class earners.
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3 tax optimization strategies
Incorporate
If you’re self-employed, one of the most powerful ways to potentially save thousands in taxes each year is incorporating your business — that is, creating a Canadian-controlled private corporation (CCPC) and earning income through it instead of personally.
The tax advantage is significant. Federal personal income tax rates for 2026 range from 14% — which the federal government recently dropped — to 33%, and when you add provincial or territorial tax, the total combined rate can push well above 50% for high earners (2). By contrast, the federal small business tax rate for a qualifying CCPC is just 9% on the first $500,000 of active business income, thanks to the Small Business Deduction (SBD). Combined, federal-plus-provincial rates typically fall between 11% and 13% for most provinces (3).
The gap between your personal marginal rate and the corporate rate creates what’s called a "tax deferral" — you leave income inside the corporation, where it’s taxed at the lower rate, and only pay personal tax when you eventually draw it out (ideally in retirement, when your income may be lower).
Incorporating also turns legitimate expenses into deductions: your salary, health insurance premiums, accounting fees, and business vehicle costs can all reduce the corporation’s taxable income.
A common rule of thumb: if you’re consistently netting $60,000 or more in freelance or small-business income, incorporating may start to make financial sense. However, there is an important caveat. If you earn passive investment income inside the corporation above $50,000 a year, the small business limit begins to be clawed back (4).
Incorporating comes with an administrative burden — corporate filings, payroll and compliance costs — so the math must favour the move before proceeding. Talk to an accountant and a lawyer before making any decisions.
Buy, borrow, die — with a critical Canadian caveat
The "buy, borrow, die" strategy works like this: you purchase appreciating assets — stocks, real estate, art — and instead of selling them (and triggering a capital gains tax bill), you borrow against them for income. The loan proceeds are not taxable because they’re debt, not income.
In the U.S., this strategy works cleanly at death: heirs inherit assets with a "stepped-up" cost basis, effectively erasing decades of accrued capital gains. In Canada, it is materially different. Under the Income Tax Act, a taxpayer is deemed to have sold all capital property at fair market value immediately before death — a "deemed disposition (5).” Any accrued capital gains are taxable on the deceased’s final return, except for assets rolled over to a surviving spouse or common-law partner, which defer the tax event until the surviving partner eventually sells.
So while the "borrow" portion of this strategy can still work for Canadians — borrowing against a non-registered portfolio through a secured line of credit or against home equity to avoid selling and triggering gains — the "die" component that makes the strategy so powerful in the U.S. does not eliminate capital gains tax in Canada. It simply defers it, unless careful estate planning (such as spousal rollovers or the use of a life insurance policy to fund the tax liability) is in place.
This is a strategy best discussed with a qualified tax and estate planning professional. It is not a plug-and-play solution for most Canadians.
Read more: 3 essential money moves to make once you’ve saved $50,000
Tax-loss harvesting
This strategy uses capital losses to reduce the taxes you owe on capital gains.
In a year where you’ve cashed out an investment at a profit, you can deliberately sell a different investment at a loss to offset that gain — reducing or eliminating the tax owed. Under Canada Revenue Agency (CRA) rules, capital losses must first be applied against capital gains in the current year. Any net capital losses that remain can then be carried back three years or carried forward indefinitely (6).
There is one important rule to know: the superficial loss rule. If you sell an investment at a loss and then you, your spouse, or a corporation you control buys the same or identical investment within 30 calendar days before or after the sale, the CRA will deny the capital loss (7). The loss is not gone — it’s added to the cost base of the repurchased investment — but you can’t use it immediately.
Note that tax-loss harvesting only applies to non-registered accounts. Because capital gains inside a Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA) are already sheltered, the CRA does not allow losses from those accounts to offset gains in non-registered accounts.
Tax optimization for average incomes
While borrowing against assets or tax-loss harvesting may not be realistic for those with modest portfolios, there are still meaningful ways to trim your tax bill.
Start by making sure you’re not leaving credits and deductions on the table. The CRA allows Canadians to claim credits and deductions for medical expenses, tuition, moving expenses (if you relocated more than 40 km closer to a new job or school), home office costs (if required by your employer), charitable donations and more (8).
On the retirement savings front, the RRSP contribution limit for the 2026 tax year is $33,810 — up from $32,490 in 2025 — calculated as 18% of the previous year’s earned income, to the annual cap (9). Because RRSP contributions are made on a pre-tax basis, they reduce your taxable income for the year. The idea is that you pay tax later, at withdrawal in retirement, when you’re ideally in a lower tax bracket.
In addition to your RRSP, the Tax-Free Savings Account (TFSA) remains one of the most flexible tools available to Canadians. The annual contribution limit for 2026 is $7,000, unchanged from 2025 (10). Eligible Canadians who have never contributed since the TFSA launched in 2009 have up to $109,000 in cumulative room. Unlike an RRSP, TFSA withdrawals are not taxed — making it an ideal place to grow investments you may need before retirement.
A few other 2025 tax year changes worth knowing about:
- The lowest federal income tax rate dropped from 15% to 14% on July 1, 2025, resulting in a blended effective rate of 14.5% for the 2025 tax year — and a full 14% for 2026 onward. The federal government estimates this will save individuals up to $420 per year (11).
- The basic personal amount — the income you can earn before paying any federal tax — is $16,452 for 2026 (12).
- Charitable donations made before December 31 qualify for a non-refundable federal tax credit of 14.5% on the first $200 and 29% on any amount above that (13). Combining donations from both spouses on a single return can maximize the credit.
Tax optimization isn’t just for millionaires. Whether you’re self-employed, investing in a non-registered account, or simply not claiming every credit you’re entitled to, the best tax strategy starts with knowing what’s available to you — and asking a professional whether it applies to your situation.
What Canadians can do right now
- Check your RRSP room. Log into your CRA My Account online to see your exact deduction limit before you contribute. The 2025 RRSP deadline was March 2, 2026; any contributions you make now will apply to the 2026 tax year.
- Max out your TFSA. With $7,000 in new room for 2026 — plus any unused room from previous years — your TFSA may be the most tax-efficient place to hold your investments.
- Review your deductions before filing. Medical expenses, moving costs, home office expenses and charitable donations are among the most commonly missed credits. The CRA’s full list is available at canada.ca.
- Talk to a tax professional about incorporating. If your self-employment income consistently exceeds $60,000, the math on incorporating may work in your favour — but the costs and compliance requirements must be part of that calculation.
- Don’t try tax-loss harvesting without advice. The superficial loss rule is easy to trip over — and the consequences (a denied loss) are not obvious until tax time.
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Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
Finder (1); Canada Revenue Agency (2, 5, 6, 8, 12); Government of Canada (3,7); Invesco Canada (4); BNN Bloomberg (9); TD Bank (10); H&R Block Canada (11); TaxTips.ca (12); Akler Browning LLP (13)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.