New Tax Tools for Small and Growing Businesses
Key policy changes that matter when selecting entity structure:
- Lifetime Capital Gains Exemption (LCGE) is raised to $1.25 million, applied for disposals after June 24, 2024; indexation to resume in 2026. (canada.ca)
- The Critical Mineral Exploration Tax Credit (CMETC) has expanded to include 12 additional minerals if investment is made in flow-through share arrangements after November 4, 2025 until March 31, 2027. (canada.ca)
- Immediate expensing and accelerated capital cost allowance (CCA) for eligible manufacturing & processing buildings, and facilities like low-carbon LNG plants, are now more favorable. (canada.ca)
Choosing the Right Entity Structure in Light of These Changes
- Incorporated business vs sole proprietorship: incorporation may now provide access to wider capital gains exemptions (LCGE), and better sheltering of investment credits. Consider share structures carefully.
- Flow-through share companies: for exploration or mining ventures, flow-through share vehicles exploiting the expanded CMETC may deliver significant tax deductions and credits.
- Use trusts or co-ownership: for tax planning around capital gains, certain trusts (though with caveats) may allow beneficiaries to access LCGE or defer tax effectively. But must watch legislative or proposed rules; some are under consultation. (canada.ca)
Practical Example
You are launching a startup mining company. If you issue flow-through shares for exploration of newly eligible critical minerals (say, germanium or molybdenum) after Nov. 4, 2025, investors can claim that enhanced tax credit. If later the company is sold, founders may qualify for the enhanced LCGE on their share gains—except for amounts above $1.25 million—making incorporation plus flow-through structuring especially powerful.
Important Entity-Setup Considerations
- Ensure compliance with filing and reporting requirements, especially for entities participating in credits like the clean hydrogen ITC or immediate expensing regimes. Improper paperwork could disqualify favorable credits.
- Be aware that some proposed measures are still under consultation (e.g., hybrid mismatch arrangements, tiered corporate structure issues). Don’t assume zero risk until legislation finalizes. (canada.ca)
- Confirm that your business qualifies for eligibility criteria (e.g., emission performance for LNG facilities, percentage use of buildings for manufacturing).
Bottom Line
Entity setup in 2026 offers richer opportunities—new exemptions, credits, and expensing tools—but with greater complexity. Choosing the right structure can make thousands in difference; mis-steps risk losing valuable tax advantages. Seek advice, stay current with law enactments, and ensure your entity matches both your business and tax horizon.