Why You Should Want to Pay More Taxes

You SHOULD want to pay more tax for your AEC firm. Yes, you read that right.

We are not saying business owners should try to overpay tax.

We are saying that many owners chase the lowest possible tax bill so aggressively that they miss the bigger picture.

Because in real life, paying more in tax is often the side effect of something you actually want:

A healthier business. Better profits. Stronger financing options. A more valuable company when it is time to sell.

This is the distinction that matters here.

Let's dive deeper into these

A higher tax bill often means the business is stronger

In Canada, tax is generally paid on taxable income. So, when your tax bill increases because your income rose, this usually means the business earned more profit first. The issue is not the tax itself. The issue is whether there is more money left after tax and whether the business is becoming more resilient over time.

Too many owners aim to pay almost no tax without asking the obvious follow-up question:

Did the business actually make enough money?

A tiny tax bill is not always a win. Sometimes it’s simply evidence that the business is underperforming on paper.

Weaker tax totals can make borrowing more difficult

This is where the “save tax at all costs” mindset can get expensive.

Lenders look at cash flow, financial ratios, and the overall strength of your financial statements when assessing whether your business can support financing. If your reported profits are consistently weak, that can reduce borrowing power right when you need capital for growth, equipment, hiring, or expansion.

So yes, reducing taxable income may save some tax initially. But if that same strategy weakens your overall lending profile, you may be trading a small short-term win for a much bigger long-term cost.

Succession planning—If you want a better sale price, your numbers need to support it

Founders often say they want to build a business they can eventually sell.

Fair enough—but buyers won’t pay a premium for a business that looks weak on paper.  Business valuation often relies on earnings, cash flow, and EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) based methods, depending on the business and the context. If your reported income is thin year after year, that can affect the value a potential buyer, bank, or valuator sees in you firm.

This is the part many owners miss:

When you spend years trying to suppress profit to save tax, you may also be suppressing the story that your financial statements tell about the quality of the business.

And that story matters when it comes time to exit.

Paying yourself a steady salary does more than people think

This is especially crucial for incorporated owners. Psst….think retirement strategy!

Salary is employment income. CRA uses your earned income to calculate eligible RRSP room, and CPP contributions are based on work income. Dividends, by contrast, are reported as investment income. That doesn’t mean salary is always better. It means the decision whether to pay yourself a salary affects more than just your potential tax amount owing.

Salary can support:

• RRSP contribution room

• CPP participation

• cleaner personal income history for some lending situations

• a more intentional owner compensation plan

This is why the decision of paying yourself a “salary vs. dividends” doesn’t reflect a quick tax fix. It should be part of a broader planning conversation.

The real goal is not lower tax. It’s a stronger business.

Good tax planning absolutely matters.

But good tax planning isn’t the same as making the business look as small as possible forever.

The better goal is this:

Build a business that is profitable enough, disciplined enough, and valuable enough that paying more tax becomes the byproduct of doing well.

This is a far better outcome than saving tax while weakening your financing options, owner planning, or eventual sale value.

Simply put, it comes down to short-term vs long-term value.

Bottom line

Take deductions where appropriate but if you’re only asking, “How do I pay less tax?” you may be asking too small a question.

A better question would be:

“How do I build a business that is profitable, fundable, and worth more overall?”

This is where better decisions start.

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Have questions about your firm's tax strategy?

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