Are you paying more tax than the ultra-wealthy? These 3 strategies can help close the gap

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.

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.

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.