The year-end review is the planning conversation that happens before the corporate fiscal year closes. By the time the books are closed and the T2 is filed, most of the decisions that shape the tax outcome for the year are fixed. The purpose of the review is to identify those decisions while the fiscal year is still open and align them with the full picture: corporate income, compensation, shareholder loan, personal tax, and RRSP position.
A year-end review done at filing time is not a year-end review. It is a retrospective that can only report on what already happened. The value of the conversation comes from timing it correctly.
What the Review Covers
The year-end review addresses a set of interconnected questions rather than a single filing obligation.
Compensation mix. How much salary will be declared for the year, and how much will be paid as dividends? This is the central decision for most incorporated contractors. Salary paid or credited in the year creates employment income, future RRSP contribution room, and pensionable earnings under CPP or QPP. Dividends avoid payroll obligations and may produce a lower combined tax cost depending on the provincial marginal rate and the integration assumptions. The right mix depends on the estimated corporate income, the personal income from other sources, the RRSP room available, and whether CPP contributions are a priority for the year. Making this decision while the year is still open allows salary to be paid before the fiscal year closes, or properly accrued before year-end and paid or set off within the 180-day unpaid-remuneration period. The salary vs dividend guide covers the decision framework in detail.
Shareholder loan account. What is the current balance, and how was it generated? If draws were taken during the year before a compensation decision was made, those draws have accumulated as a debit balance in the shareholder loan account. Clearing that balance through repayment, or through salary or dividends that are actually paid, credited, or set off against the loan, addresses the section 15(2) income inclusion risk when it is done within the repayment window. The shareholder loan account guide covers that exposure and the timing rules that govern it.
Corporate taxable income. What is the estimated net income of the corporation for the fiscal year? Salary paid in the fiscal year, or properly accrued before year-end and paid or set off within the unpaid-remuneration period, reduces corporate income as a deductible expense. A lower corporate income means a lower corporate tax payable. The relationship between compensation and corporate tax is one of the primary levers available during the review. A contractor who pays or accrues too little salary may end up with more corporate income than expected and a larger T2 balance owing.
RRSP position. CRA calculates RRSP deduction limits using prior-year earned income. Salary paid or credited before December 31 is earned income for that calendar year and generally helps create RRSP room for the next tax year. It does not create new deduction room for the first-60-days RRSP contribution deadline for the same tax year. A contractor whose fiscal year ends in a month other than December needs to separate corporate deduction timing from personal RRSP-room timing. Salary paid after December 31 affects RRSP room based on the later calendar year in which it is paid or credited, regardless of when the corporate fiscal year closes.
Unpaid amounts. Unpaid salary, wages, bonuses, director fees, or other office or employment remuneration owing to the shareholder may lose their deductibility if they remain unpaid past the 180th day after the corporate fiscal year-end. Subsection 78(4) of the Income Tax Act deems those amounts not to have been incurred as an expense in the year if the 180-day deadline passes without payment or valid set-off against the shareholder loan. The deduction is then pushed to the year in which the amount is actually paid. Identifying accrued amounts early enough to make the payment decision avoids that loss.
Eligible vs non-eligible dividend pool. Whether a dividend is eligible or non-eligible affects the gross-up and the dividend tax credit on the T1. Most small CCPCs with income subject to the small business rate pay non-eligible dividends. A corporation with a refundable dividend tax on hand (RDTOH) balance may want to declare a taxable dividend to trigger a dividend refund. Knowing which pool is available and how large it is affects the dividend decision.
Corporate Tax Estimate
The year-end review should include an estimate of the federal and provincial income tax that will be owing when the T2 is filed. For a CCPC earning active business income that is eligible for the small business deduction, the combined federal-provincial rate on that income is substantially lower than the general corporate rate. Once eligible income exceeds the available business limit, the general rate applies to the excess.
The estimate should account for whether the full federal $500,000 business limit is available for the year. Associated corporations share the limit under subsection 125(3), and the allocation is filed on Schedule 23. The limit can also be reduced by the passive-investment-income grind and, for larger corporate groups, by taxable capital. A contractor who owns another corporation, has significant investment income inside the corporation, or may be part of an associated group should confirm the available limit before planning around it.
If the estimate indicates that instalments paid to date fall significantly below what will be owed, a catch-up payment made before or shortly after year-end can limit additional arrears interest, though it does not erase interest that has already accrued on earlier shortfalls. If instalments exceed the estimated liability, the excess will be refunded when the T2 is assessed. The quarterly tax instalment guide covers the instalment mechanics.
Connection to the T1
The year-end review is not only a corporate exercise. The decisions made in the corporation flow through to the personal tax return and affect it in multiple ways.
Salary paid or credited is employment income on the T1. Dividends are taxable dividend income, subject to the gross-up and dividend tax credit calculation. The combination affects the effective marginal rate, the instalment requirement for the following year, and eligibility for deductions that phase out at higher income levels.
For a contractor with additional sources of income on the T1, including US-source income, rental income, or investment income from a non-registered account, the compensation decision has to be made with those inputs included. A salary or dividend level that appears optimal when only the corporation is considered may produce a different result when the full T1 picture is included. The T2 and T1 filing guide covers how those two returns interact.
A CPA who manages both the T2 and the T1 for the same client has most of the required information already. The year-end conversation is about confirming current-year estimates and making the compensation decision before options close.
Timing
A review completed two to three months before the fiscal year closes provides the most flexibility. Compensation can be declared and paid. Expenses incurred before year-end can still be captured. The instalment position can be checked and corrected if needed. RRSP implications can be evaluated while the calendar year is still open.
A review in the final week of the fiscal year is better than none, but some options are already gone. Expenses that could have been incurred before year-end can no longer be timed. The gap between the review and the actual closing date compresses the available response.
A review after the fiscal year closes can still address the shareholder loan account, repay or clear a debit balance within the section 15(2) window, and pay or set off salary or bonuses that were properly accrued before year-end within the 180-day unpaid-remuneration period. It should not be treated as an open-ended opportunity to create retroactive salary deductions. Filing time is too late for the full set of pre-close planning decisions.
What Happens Without a Pre-Year-End Review
The most common consequences of skipping or deferring the review are predictable.
Compensation is decided reactively. Without a pre-year-end review, the compensation mix is often determined at filing time, after the year is already closed. The calculation at that point reflects what minimizes the tax bill on the numbers as they stand, rather than what was achievable with planning. Some outcomes that were available before year-end, such as paying salary before December 31 to build the next year’s RRSP room or properly accruing a year-end bonus that reduces corporate income to a particular threshold, are no longer accessible.
Shareholder loan accumulates. Draws taken throughout the year without a corresponding compensation plan create a debit balance that grows until it is addressed. Discovering a large balance at filing time, after the section 15(2) repayment window has narrowed, is a more constrained problem than addressing it with two months of fiscal year remaining.
Instalment shortfall is discovered late. If corporate instalments for the year are insufficient and the shortfall is only identified at filing time, arrears interest has already accrued. A review timed for two to three months before year-end allows a voluntary top-up payment that limits the interest exposure.
Quebec Perspective
Quebec-resident incorporated contractors have the same year-end review requirements as elsewhere, with additional inputs specific to Quebec. QPP contributions, QPIP premiums, and the health services fund employer contribution are costs generated by salary on the Quebec side, separate from CPP. These affect the salary-vs-dividend comparison differently in Quebec than in other provinces. The Quebec corporate tax estimate also needs a separate provincial small-business-deduction check, because the Quebec lower-rate calculation does not always follow automatically from the federal SBD result.
Revenu Québec administers its own instalment schedule parallel to CRA’s. A catch-up instalment decision based on the year-end estimate should address both the federal and Quebec sides separately, since the amounts, accounts, and deadlines are distinct.
For the Quebec-specific filing structure overview, the federal-Quebec filing structure hub provides the relevant context.
The year-end review is the point in the corporate calendar where the most consequential decisions for the year are made with the most flexibility. That flexibility does not survive the fiscal year closing. A CPA who structures the year-end conversation as a forward-looking planning discussion, not a retrospective filing exercise, is operating at the level where the work actually changes outcomes.