--- title: "Holding Companies: When They Make Sense | EverStone" url: https://www.everstonecpa.com/blog/holding-company-canada-when-it-makes-sense description: "A holding company can protect retained earnings and support estate planning — but it isn't right for every incorporated business. Read the free CPA guide." type: guide updated: 2026-10-12 summary: "A holding company can protect retained earnings and support estate planning, but it isn’t right for every incorporated business. It makes the most sense once your operating company has built up meaningful retained earnings and carries real business risk. For a newer or smaller corporation, the extra cost and complexity of running two companies usually isn’t worth it yet." faq_count: 7 publisher: EverStone CPA Inc., a Chartered Professional Accountant firm registered with CPA British Columbia and CPA Alberta service_area: British Columbia, Alberta, Ontario and Manitoba language: en-CA contact: info@everstonecpa.com · https://www.everstonecpa.com/book-online --- [Home](https://www.everstonecpa.com/) [Blog](https://www.everstonecpa.com/blog) Holding Companies: When They Actually Make Sense Advisory # Holding companies: *when they actually make sense* By EverStone CPA · Updated August 2026 · 8 min read **Quick answer:** A [holding company](https://www.everstonecpa.com/glossary#holdco) can protect retained earnings and support estate planning, but it isn’t right for every incorporated business. It makes the most sense once your operating company has built up meaningful retained earnings and carries real business risk. For a newer or smaller corporation, the extra cost and complexity of running two companies usually isn’t worth it yet. The structure — and when it earns its keep. **Rather have a CPA handle this?** A CPA at EverStone replies with a straight answer and a fixed fee for your situation. [Get My Fixed Quote →](https://www.everstonecpa.com/book-online?service=planning#enquiry-form) ## Key takeaways - A holding company (holdco) owns shares of your operating company rather than running the business itself. - Moving retained earnings up to a holdco can protect them from the operating company’s business creditors and lawsuits. - Dividends between connected Canadian corporations generally move without an immediate tax cost. - Holdco structures can, with advance planning, support using more than one family member’s capital gains exemption. - Holdcos add real ongoing cost and complexity — they’re not worth it for every business. “Should I set up a holding company?” is one of the most common questions incorporated business owners ask once their corporation starts accumulating real [retained earnings](https://www.everstonecpa.com/blog/retained-earnings-canada). The honest answer is: it depends on what you’re protecting and how much complexity you’re willing to carry. Here’s how holdcos actually work, what they’re good for, and when they’re simply not worth the cost. **On this page**[What a holding company is](#s-what-a-holding-company-is)[Creditor-proofing retained earnings](#s-creditor-proofing-retained-earnings)[Inter-corporate dividends make the mechanics work](#s-inter-corporate-dividends-make-the-mecha)[Multiplying the capital gains exemption](#s-multiplying-the-capital-gains-exemption)[Estate planning](#s-estate-planning)[When a holdco is not worth it](#s-when-a-holdco-is-not-worth-it)[The bottom line](#s-the-bottom-line)[Frequently asked questions](#s-frequently-asked-questions)[Wondering if a holding company fits your business?](#s-wondering-if-a-holding-company-fits-your) ## What a holding company is A holding company doesn’t sell anything or deliver services. Its role is to **own** — typically, shares of your operating company (“opco”), plus cash and investments that get moved up from it over time. The two-company structure separates the business that takes on operational risk (the opco) from the entity that holds accumulated wealth (the holdco). **Thinking about a holding company?** We model whether it pays for you, set it up with your lawyer and prepare both T2s, at a fee quoted in writing. [Get a planning quote](https://www.everstonecpa.com/book-online?service=planning#enquiry-form). [Get My Fixed Quote](https://www.everstonecpa.com/book-online?service=planning#enquiry-form) ## Creditor-proofing retained earnings This is usually the main reason contractors and small business owners set up a holdco. Cash sitting inside your operating company is exposed to that company’s risks, a client lawsuit, a workplace injury claim, a contract dispute, a bad debt from a subcontractor. If a claim exceeds your insurance, creditors can potentially reach the cash sitting in the opco’s bank account. Moving surplus cash and investments up to a holding company — leaving the opco with just what it needs to operate — puts that money outside the reach of the operating company’s business creditors. This has to be done as routine, ongoing corporate housekeeping, not as a reaction after a claim has already arisen; moving assets out of a company that’s already facing a claim can be challenged and unwound. **Timing is everything.** Creditor protection through a holdco works because the transfers happen as part of normal, ongoing business practice — well before any claim exists. Setting one up after a dispute has started generally doesn’t protect anything. ## Inter-corporate dividends make the mechanics work Dividends paid between connected Canadian private corporations generally move without triggering an immediate tax cost, because the tax system doesn’t want the same corporate income taxed twice as it moves between related companies. That’s what makes creditor-proofing practical: the opco can pay a dividend up to the holdco, moving cash to safety, without an upfront tax bill eating into the amount transferred. [The conditions on inter-corporate dividends](https://www.everstonecpa.com/blog/inter-corporate-dividends-canada). Not sure how this applies to you? Every corporation’s situation is different. Send an enquiry to a CPA and get a straight answer, plus a fixed quote before any work starts. [Send an Enquiry →](https://www.everstonecpa.com/book-online?service=planning#enquiry-form) [See fixed fees](https://www.everstonecpa.com/pricing) ## Multiplying the capital gains exemption When a qualifying small business is eventually sold, each eligible individual shareholder may be able to use their own capital gains exemption against a portion of the gain. With advance planning — often years before a sale — structuring ownership across family members through holding companies or a family trust can allow more than one person’s exemption to be used, rather than just the founder’s. This only works with proper structuring well ahead of time, and it typically requires keeping the operating company “pure” enough (limiting passive investments inside it) to continue qualifying. It’s advance estate and exit planning, not a last-minute move. ## Estate planning Holding companies also support a smoother transition of ownership to the next generation or to a spouse. They make it easier to implement an [estate freeze](https://www.everstonecpa.com/blog/estate-freeze-canada-small-business) — locking in the current value of the business for the founder while future growth accrues to shares held by family members or a trust, and to separate operating risk from the family’s accumulated wealth as ownership eventually transitions. Shares of an operating company are usually moved into a holdco using a [section 85 rollover](https://www.everstonecpa.com/blog/section-85-rollover-explained), and a group that ends up with one corporation too many can later be simplified by [amalgamation or a wind-up](https://www.everstonecpa.com/blog/amalgamation-vs-wind-up-canada). ## When a holdco is not worth it None of this is free. A holding company means: - A second [corporate tax return](https://www.everstonecpa.com/corporate-tax-return-t2) every year, on top of the operating company’s. - A second minute book, annual filings, and legal maintenance. - Added complexity when investments inside the holdco interact with the [small business deduction](https://www.everstonecpa.com/glossary#sbd) available to the operating company. See our article on [passive income and the small business deduction](https://www.everstonecpa.com/blog/small-business-deduction-passive-income-canada). - Legal and accounting fees to set the structure up properly in the first place. If your operating company isn’t yet retaining meaningful cash beyond what it needs to run, or you expect to sell or wind up the business in the near term, the ongoing cost of a second corporation often outweighs the protection it provides. A holdco is a tool for a business that has already built something worth protecting, not a starter structure. ## The bottom line A holding company is worth serious consideration once your corporation is retaining real cash, carries meaningful operating risk, or you’re starting to think about how ownership transitions to family or a future sale. Before setting one up, it’s worth mapping out the ongoing cost against the specific risk you’re protecting against — that conversation belongs with your [business advisory](https://www.everstonecpa.com/advisory-services) team, ideally years before you need the protection, not after. Two GST/HST points belong in that mapping: whether the group can use the [section 156 nil consideration election](https://www.everstonecpa.com/blog/gst-hst-section-156-election-related-corporations) on intercompany charges, and what sits in each company’s [capital dividend account](https://www.everstonecpa.com/blog/capital-dividend-account-explained). Sources - [Canada Revenue Agency — Corporation income tax](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/corporations.html) - [Chartered Professional Accountants of British Columbia (CPABC)](https://www.bccpa.ca/) - [Canada Revenue Agency — Forms and publications](https://www.canada.ca/en/revenue-agency/services/forms-publications.html) This article is general information for Canadian business owners and is current as of July 2026. It is not tax, legal or accounting advice, and it does not create a client relationship. Tax rules change and your situation is unique, so please [speak with a CPA](https://www.everstonecpa.com/book-online?service=planning#enquiry-form) before acting on anything here. Before moving a portfolio anywhere, it helps to know how the income will be taxed once it is there — see [refundable tax on corporate investment income](https://www.everstonecpa.com/blog/investment-income-in-a-corporation-canada). About this article **EverStone CPA** Prepared and reviewed by a Chartered Professional Accountant at EverStone CPA, a CPA firm working with small and midsized businesses in BC, Alberta, Ontario and Manitoba. [About the firm →](https://www.everstonecpa.com/about) · [Send an enquiry →](https://www.everstonecpa.com/book-online?service=planning#enquiry-form) Working through this in your own business? We advise owners on it remotely across BC, including a [virtual accountant in Vancouver](https://www.everstonecpa.com/accountant-vancouver). If the holding company owns residential property rather than shares, a separate annual return can be triggered even where no tax is owed. See [the Underused Housing Tax filing rule](https://www.everstonecpa.com/blog/underused-housing-tax-canada-corporations). ### Related articles [Passive income & the SBD →](https://www.everstonecpa.com/blog/small-business-deduction-passive-income-canada) [Leave money in the corp, or pay it out? →](https://www.everstonecpa.com/blog/leave-money-in-corporation-or-pay-out-canada) [Business advisory →](https://www.everstonecpa.com/advisory-services) [Does a holdco make you associated? →](https://www.everstonecpa.com/blog/associated-corporations-small-business-deduction)[The lifetime capital gains exemption →](https://www.everstonecpa.com/blog/lifetime-capital-gains-exemption-canada-small-business) FAQ ## Frequently asked questions **What is a holding company?** A holding company (holdco) is a separate corporation that owns shares in your operating company rather than running the day-to-day business itself. Its main function is to hold assets — typically shares of the operating company, plus cash and investments moved up from it — rather than to sell products or services. **How does a holdco protect my money from business risk?** Cash and investments left inside your operating company are exposed if that company is ever sued or becomes insolvent. Moving excess retained earnings up to a holding company, generally through a tax-free inter-corporate dividend, keeps those funds outside the operating company’s balance sheet and out of reach of its business creditors. **Can a holding company help me use more than one capital gains exemption?** In some structures, yes — spreading ownership across family members through holding companies or a family trust can, with careful advance planning, allow more than one person’s capital gains exemption to be used when the business is eventually sold. This requires planning well ahead of a sale, not at the time of the transaction. **Does it cost more to run a holding company?** Yes. A holding company means a second corporate tax return, a second set of corporate filings, and a second minute book to maintain, on top of legal and accounting costs to set it up properly. It only makes sense once the benefit — usually creditor protection or estate planning — outweighs that ongoing cost. **When does a holding company not make sense?** If your corporation isn’t retaining significant cash or investments, or you’re planning to sell or wind up the business soon, the setup and ongoing maintenance costs of a holdco often outweigh the benefit. It tends to make the most sense once meaningful retained earnings have built up and there’s real business risk to protect against. **Can I set up a holding company after a claim or dispute has started?** Generally not effectively. Creditor protection works because the transfers happen as routine, ongoing housekeeping well before any claim exists. Moving assets out of a company that is already facing a claim can be challenged and unwound. If protection is the goal, the structure has to be in place, and used consistently, long before you actually need it. **Does a holding company affect my small business deduction?** It can. Investments held in a holdco generate passive [investment income](https://www.everstonecpa.com/investment-income-and-capital-gains), and passive income measured across an associated group can grind down the business limit available to the operating company. Introducing a holdco can also create association where none previously existed. Both effects are manageable with planning, but they belong in the decision rather than being discovered at filing time. ## Wondering if a holding company fits your business? Tell us what the operating company earns and keeps. A CPA replies by email within one business day with whether a holdco makes sense and a fixed fee. [Get My Fixed Quote](https://www.everstonecpa.com/book-online?service=planning#enquiry-form)[Book a Paid Advice Call](https://www.everstonecpa.com/advice-call) **Run your own numbers with the free calculators:** [compare salary against dividends](https://www.everstonecpa.com/salary-vs-dividends-calculator) · [check when your T2 is due](https://www.everstonecpa.com/t2-deadline-calculator) · [check whether instalments apply to you](https://www.everstonecpa.com/tax-instalment-calculator) [← Hiring your first employee — the Canadian checklist](https://www.everstonecpa.com/blog/hiring-first-employee-canada-checklist) [Home office deductions for incorporated owners: what the corporation can and can’t pay for →](https://www.everstonecpa.com/blog/home-office-deduction-corporation-canada) ## Have a question about this? Ask it free through [the quick-question form](https://www.everstonecpa.com/quick-question) and a CPA replies by email within one business day. For something that needs a proper look, a one-off **Advice Call** is a paid 45-minute session with a Chartered Professional Accountant: $225 plus GST, booked by email or phone with a secure payment link. It is credited against your first invoice if you become a client within 60 days. Looking for an accountant to take this on rather than an answer? [Send an enquiry](https://www.everstonecpa.com/book-online?service=planning#enquiry-form). [Ask a Free Question](https://www.everstonecpa.com/quick-question) [Book a Paid Advice Call](https://www.everstonecpa.com/advice-call) Email info@everstonecpa.com ★★★★★ “Personal. Professional. Responsive. Plus he saved me a bundle!” Corrin Skalbeck · Google Local Guide --- Source: https://www.everstonecpa.com/blog/holding-company-canada-when-it-makes-sense Prices: https://www.everstonecpa.com/pricing · Contact: info@everstonecpa.com · https://www.everstonecpa.com/book-online