Holdco or opco: does a contractor need a holding company?

What an opco and a holdco are

Most incorporated contractors have one company. It bids on jobs, signs contracts, hires crews, buys trucks and tools, bills customers and pays the GST and payroll remittances. That company is the operating company, or opco. It also carries the risks of the trade: a job that goes wrong, a dispute over a deficiency, an injured worker, a customer who doesn't pay.

A holding company, or holdco, mainly owns shares or other assets: typically the shares of the opco, and often the cash, investments or property that the business has built up but doesn't need day to day. It may also earn rent or other income and have liabilities of its own. You own the shares of the holdco, and the holdco owns the shares of the opco. Nothing about the trade changes; the ownership above it does.

If you're still deciding whether to incorporate at all, start with our guide on when incorporating makes sense. A holdco is a second step, not a first one.

Why a contractor might add a holdco

1. Keeping retained earnings away from the trade

Profit that stays in the opco sits next to the risk. If the opco is sued or a big receivable goes bad, that cash is an asset of the company in trouble. When the opco pays a dividend to the holdco, the money moves to a company that doesn't do the risky work, so it is generally further from the opco's creditors.

The limits matter as much as the idea. Personal guarantees you signed for the bank, the bonding company or the equipment lender still bind you. If the holdco lends the money back to the opco for a slow season, it's exposed again, as a loan. Transfers made when the opco is already insolvent, or to defeat a known claim, can be challenged. And none of this replaces liability insurance. The protection is real but partial, and it's a legal question as much as a tax one.

2. Inter-corporate dividends

Moving profit up is possible because of how dividends between Canadian corporations are taxed. When the opco pays a taxable dividend to the holdco, the holdco includes it in income and then generally deducts the same amount under section 112 of the Income Tax Act, so there's usually no second layer of corporate tax. Where the companies are connected (broadly, the holdco controls the opco, or owns more than 10% of its votes and value), the refundable Part IV tax that can apply to dividends between companies generally applies only to the extent the opco got a dividend refund. Most contractor opcos pay little or no refundable tax, so most of these dividends move up without Part IV tax. The rules have detail we're skipping here.

Two things don't change. The opco has already paid corporate tax on its profit (11% on active business income up to the shared limit, where it qualifies for the small business deduction, as our corporate tax rates guide explains). And when you take money out of the holdco for yourself, you pay personal tax on the salary or dividend, as you would from the opco. A holdco can defer that personal tax; it doesn't remove it.

3. Owning the shop, the yard or the equipment

Some contractors have the holdco (or a separate company) own the shop or yard and rent it to the opco, so the building isn't an asset of the company that does the work. Equipment can be held the same way and leased to the opco. This separates the big assets from the trade's risk and can make a future sale of the business simpler, since the buyer takes the opco and you keep the property.

The cost is tax friction. Rent between the companies is income to the holdco. Rent from an associated company that the opco deducts from its active business income is generally treated as active income for the holdco, but it still goes through two sets of books, and the lease or rental terms need to be documented at a defensible level. Property held in a corporation also has its own GST, PST and capital gains questions. This is a case where the tax, legal and insurance sides all have to agree before you move anything.

4. Planning for a sale and the lifetime capital gains exemption

If you sell the shares of a qualifying small business corporation, you may be able to claim the lifetime capital gains exemption: $1,275,000 of gains for 2026 (a deduction of up to $637,500, since half of a gain is taxable). To qualify, the shares must pass tests, including:

• At the time of sale, the company is a small business corporation: all or substantially all of the value of its assets is used in an active business carried on mainly in Canada (in practice, about 90%).
• Throughout the 24 months before, more than 50% of the value of its assets was used in an active business (or in shares or debt of connected companies that meet the test).
• Throughout those 24 months, nobody other than you or someone related to you owned the shares.

A profitable contractor who leaves cash and investments in the opco for years can fail the 90% test. Paying surplus up to a holdco is one way to keep the opco "pure" so its shares qualify when the time comes. But it cuts both ways: if the holdco is what you sell, its shares have to pass the same tests, and a holdco full of investments usually won't. The exemption belongs to eligible individuals, not corporations. Certain qualifying gains allocated through a personal trust can also qualify; the ownership and allocation rules need review, which is where share structures and family ownership come in. Our capital gains guide covers the basics.

5. Investing inside the company

Once profit sits in the holdco, it can be invested there. Investment income inside a corporation is taxed at a high corporate rate, with part of that tax refundable when dividends are paid out to you, and it counts toward the group's adjusted aggregate investment income, which can shrink the small business limit (below). Investments themselves are a conversation with a licensed advisor; we don't sell investments. Our salary or dividends guide and the salary vs dividend calculator cover how you pay yourself once the structure is set.

What it costs and complicates

A holdco is a second corporation, with everything that comes with one. Before you add one, be honest about these:

Associated companies share one $500,000 limit

Companies are associated when, broadly, one controls the other or the same person or group controls both. A holdco that owns the opco is associated with it. Associated Canadian-controlled private corporations share one $500,000 business limit and agree how to split it on Schedule 23 of their T2 returns. Since most holdcos earn little active business income, the usual split gives the opco all or nearly all of it. The point is that a holdco doesn't create a second $500,000 at the low rate.

The passive income grind

If the companies in the associated group earned more than $50,000 of adjusted aggregate investment income (interest, most rent, portfolio dividends, taxable capital gains) in the previous year, the shared business limit shrinks by $5 for every $1 above $50,000, and it is nil at $150,000. A holdco holding a few hundred thousand dollars of investments can cross $50,000 of income in a good year, and the opco then pays more tax on its trade income. The corporate tax rates guide has a table of how the limit falls.

Section 55 and other anti-avoidance rules

Inter-corporate dividends are deductible, so the Income Tax Act has rules against using them to turn what would be a capital gain into a tax-free dividend. Section 55 can turn an intercorporate dividend into a capital gain when its anti-avoidance conditions apply. We review the dividend's purpose, related transactions, safe income and the exceptions before large or unusual distributions. These rules are technical, and they come up in ordinary situations: a large dividend to a holdco before a sale, or a reorganisation that moves assets between companies. Other rules can apply too, including the tax on split income where family members hold shares, and the general anti-avoidance rule. The practical point: dividends up to a holdco are routine, but large or unusual ones get reviewed first, with the lawyer involved where shares change hands.

When a holdco is not worth it

• You take out everything the business earns. If your salary and dividends use up the profit, there's nothing for a holdco to hold, and you'd be paying for a second company that does nothing.
• The opco is still small or new. The extra returns and bookkeeping cost the same in a quiet year. Most contractors are better off building retained earnings in one company first.
• The risk is already managed. Good insurance, written contracts and a clean separation of personal and company money may do most of what you want, at lower cost.
• You've signed personal guarantees for everything. If the bank, the bonding company and the equipment lender all have your personal guarantee, moving cash to a holdco doesn't change what you owe them.
• You don't want the complexity. Two companies mean two of everything, and transactions between them have to be documented. If that isn't going to happen reliably, the structure can create problems instead of solving them.

A holdco tends to be worth a closer look once the opco has profit it doesn't need every year, when the trade carries real liability risk, when the business owns or will buy property, or when a sale is on the horizon. There's no set income or balance at which it becomes right; it depends on your numbers, your risk and your plans.

The legal lane

Creating a holdco for an existing business is not just opening a second company. The opco's shares usually have to be reorganised so the holdco owns them, often through a tax-deferred reorganisation; the companies need articles that allow the right share classes; and if anyone other than you will hold shares, a shareholder agreement. Those are legal documents, drafted by your lawyer. We don't draft them.

What we do is the tax and accounting side: whether a holdco makes sense for your numbers, how the small business limit and investment income would work across the group, what the yearly filings and bookkeeping would look like, and how dividends and loans between the companies should be recorded. We work alongside your lawyer so the tax side and the legal side line up. This article is general information, not legal advice.

This guide is general information for contractors and trades businesses in BC and Alberta, checked against the CRA's pages and the Income Tax Act on 28 Oct 2026. Rules have exceptions and can change; it isn't tax or legal advice for your situation.