5 Tax Tips for High Income Earners In Canada

As your income rises, so does your marginal tax rate, which means proactive tax planning is a must. High-income earners – which is considered an annual salary of $115,000+ in Canada – face some of the steepest tax rates in Canada, but there are smart, legal strategies to help keep more of your hard-earned dollars. Here are 5 strategies to reduce your tax bill and build wealth more efficiently.

1. Maximize Registered Accounts

Registered accounts are the backbone of tax planning for higher earners. The most common ones are the RRSP (Registered Retirement Savings Plan), TFSA (Tax Free Savings Account), IPP (Individual Pension Plan), and RESP (Registered Education Savings Plan).

RRSP (Registered Retirement Savings Plan)

RRSPs remain one of the most powerful tax-deferral tools available in Canada. Contributions to an RRSP are fully deductible against your taxable income in the year you make them, plus the investments inside your RRSP grow tax-deferred, meaning you don’t pay tax on the gains each year. Instead, you pay tax when you withdraw funds in retirement (ideally at a lower tax rate if your income is reduced after you stop working). This allows your portfolio to compound more effectively over time.

It’s important to monitor your contribution room – which is based on earned income from the previous year – to avoid over contribution penalties, which can be steep.

Let’s illustrate this tax benefit with an example. Casey earns $200,000 per year in Ontario. At that income, their marginal tax rate is roughly 48%.

In 2025, the RRSP contribution limit is 18% of earned income up to a maximum of about $32,490.

That means by contributing $32,490 to the RRSP, Casey will reduce his tax bill by $15,595 immediately. Additionally, the $32,490 stays invested inside the RRSP, growing tax-deferred. If it grew, say, 6% per year for 20 years, it could grow to around $104,000, entirely shielded from annual taxation until withdrawn.

TFSAs (Tax-Free Savings Accounts)

While TFSA contributions are not tax-deductible, they still provide generous benefits. Any income earned inside a TFSA – whether interest, dividends, or capital gains – is completely tax-free, and there is no tax on withdrawals. This makes them a highly flexible savings vehicle.

For high-income earners, TFSAs can complement RRSPs by providing tax-free growth on funds you might need earlier than retirement, or to hold investments that would otherwise produce a lot of taxable income. Withdrawals do not affect income-tested benefits, and the contribution room resets in the following year after a withdrawal, preserving long-term flexibility.

In 2025, the annual contribution limit is $7,000, with cumulative room for those who have never contributed reaching upwards of $95,000 since the program’s inception.

Individual Pension Plans (IPPs)

An IPP is a defined-benefit pension plan set up by an incorporated business for the benefit of a business owner or key employee. Unlike RRSPs, IPPs have higher contribution limits for older individuals, making them especially attractive for high-income professionals in their 40s, 50s, or 60s who want to accelerate retirement savings.

The corporation contributes to the IPP, and the contributions are tax-deductible to the corporation. These plans also include funding for past service, which can allow a significant one-time catch-up contribution. IPPs are regulated more strictly than RRSPs, but they offer strong creditor protection and can provide predictable retirement income similar to a traditional defined-benefit pension.

RESPs (Registered Education Savings Plans)

RESPs are designed to help you save for your children’s post-secondary education while benefiting from government grants and tax-sheltered growth. Contributions themselves are not tax-deductible, but the money grows tax-free inside the plan.

The government provides the Canada Education Savings Grant (CESG), matching 20% of your contributions up to $500 per year, per child (with a lifetime maximum of $7,200 per child).

When the funds are withdrawn for education, the original contributions come out tax-free, while the investment gains and grants are taxed in the child’s hands, typically at a very low tax rate since most students have little to no other income.

For high-income earners who want to fund their children’s education while gaining an investment advantage, RESPs are hard to beat.

2. Income Splitting Strategies

Income splitting is a valuable way to reduce a family’s overall tax burden. There are three primary options here: spousal RRSPs, family salary, and gifting.

If your spouse has a lower income, the high-income earner can contribute to their spouse’s RRSP to shift future retirement income. This means once the funds are withdrawn, both spouses will benefit from the lower tax bracket of the non-high-income earner.

If you own a business, paying reasonable salaries to a spouse or adult children can redistribute income within the family. Be aware that there are specific TOSI (Tax on Split Income) rules that you must abide by. Read our article Income Splitting Ideas for Business Owners to learn more.

Lastly, in certain cases, you can gift money to adult children, who will benefit if they are in lower tax brackets.

3. Incorporation and Corporate Structures

Incorporating can be a powerful strategy for high-income professionals and business owners, because it allows you to separate business income from personal income, creating valuable tax-planning flexibility. Additionally, it’s a way of controlling the timing of personal income, protecting assets, and building long-term wealth.

Lower Corporate Tax Rates

In the case where your employer will allow you to operate as a contractor or freelancer instead of a T2 employee, you can set up a corporation to lower your tax bill. When you operate through a corporation, business profits can be left in the company rather than paid out to you personally.

For example, the small business corporate tax rate on the first $500,000 of active business income is between 9% – 12.2%, compared to a personal marginal tax rate of up to 53% (depending on which province you live in). If you leave $100,000 of earnings in the corporation instead of paying it all out personally, you save significant tax upfront, giving you more after-tax dollars to reinvest inside the business or in passive investments.

Professional Corporations

Certain professionals, such as doctors, dentists, lawyers, engineers, accountants, are allowed by their governing body to incorporate as a professional corporation. The advantages include income deferral, income splitting with family members, retirement planning, and creditor protection.

For example, let’s say a physician billing $400,000 per year needs only $200,000 for living expenses. She could leave the remaining $200,000 in her professional corporation, paying 9-12.2% corporate tax rather than ~53% personal tax. That preserves an additional ~$72,000 per year to invest or save!

Holding Companies

A holding company can add another layer of tax and legal planning. Typically, a holding company owns shares of your operating company, collects after-tax dividends from the operating company, and then invests those funds in stocks, bonds, or real estate. When structured correctly, the holding company may provide protection of your assets. It also facilitates easier estate planning, since shares of the holding company can be transferred to family members or a trust.

4. Tax-Efficient Investing

Tax treatment varies greatly across investment types, making it very important for high-income earners to be intentional about how their investment returns are generated. We recommend prioritizing capital gains, favouring Canadian dividends, and harvesting losses strategically.

Capital Gains

When you sell an investment like a stock, ETF, or real estate (outside of your principal residence), any capital gain is the profit above your original purchase price. In Canada, only 50% of that gain is taxable.

For example, let’s say Keisha buys shares of Apple stock for $50,000 and sells them for $80,000.

If your marginal tax rate is 45%, you’d only pay tax on $15,000, resulting in a tax bill of $6,750, rather than being taxed on the entire $30,000.

This makes capital gains far more tax-efficient than, for example, interest income, which is fully taxable at your marginal rate. That’s why high-income earners often prefer growth-oriented investments that generate capital gains rather than bonds or GICs paying interest.

Dividends

Dividends paid by eligible Canadian corporations receive a special tax break through the dividend gross-up and tax credit system. The dividend is “grossed up” (increased) on your tax return to simulate pre-tax earnings. You then receive a federal and provincial dividend tax credit to recognize that the corporation already paid tax on its profits before distributing the dividend. The end result? You pay a lower effective tax rate on eligible dividends than on interest income.

For example, let’s say you have an eligible Canadian dividend of $10,000. Depending on your province and tax bracket, you might pay an effective tax rate around 30% rather than your full marginal rate of 48–53%.

Tax-Loss Harvesting

Tax-loss harvesting is a year-end (or ongoing) strategy where you sell investments that are at a loss and then use those losses to offset taxable capital gains on other profitable investments. By realizing those losses, you reduce your current year’s tax bill. In Canada, you can carry capital losses back three years or forward indefinitely to offset gains.

For example, let’s say you sold shares with a $20,000 capital gain this year. You also have other shares with a $10,000 capital loss. Only $10,000 of net capital gain remains taxable, and half of that is included in income. So you’d pay tax on $5,000 instead of $10,000.

5. Charitable Donations

If you have charitable intentions, doing it strategically can improve your tax position. Here are three things to improve your donation strategy for tax purposes.

Donate Securities Instead of Cash

Many high-income earners hold stocks, ETFs, or mutual funds that have appreciated in value. If you sell those investments to donate cash, you’ll pay tax on 50% of the capital gain. However, if you donate the securities directly to a registered charity, you completely eliminate the capital gains tax, and still receive a charitable donation tax receipt for the full fair market value of the securities! A win-win.

Donor-Advised Funds (DAFs)

A donor-advised fund is like a “charitable investment account” you create through a sponsoring foundation or financial institution. You make a lump-sum charitable contribution today, get the full tax receipt now, but then can distribute the funds to charities gradually over future years. Plus, there is much less administrative work involved than creating a private foundation.

Timing: Bunching Donations

Canada’s charitable tax credit system is progressive: you get a higher credit once your donations exceed $200 in a year. For high-income earners with variable income or major gains, it can make sense to bunch multiple years’ worth of donations into a single tax year to maximize credits. For example, instead of donating $5,000 every year for 5 years, you donate $25,000 in one year. This way, you cross the $200 threshold right away, get a larger tax credit against income in a single year, and this is especially impactful for offsetting a large capital gain or bonus in that high-income year.

Conclusion

The higher your income, the more crucial proactive tax planning becomes. While all of these strategies are great for high-income earners, it’s important to be aware of all rules that apply while using these tax tips. Mistakes involved with using more complex tax strategies can be costly – in penalties and interest from the CRA, and even the headache of an audit.

At Madan CPA, our team can build a personalized strategy to protect and grow your wealth, and give you confidence that your tax planning is fully compliant and optimized. Contact us today to start your customized tax plan!