Does a corporately owned contract affect the small business share test?
It can, and the direction is unhelpful. The test that lets shares qualify measures how much of the company's value sits in assets used in an active business, and the value building inside a contract is generally not one of those assets. Whether it moves a particular company offside is measured by a CPA, not estimated.
What kind of answer this is
- Claim type: Tax or regulatory position
- Claim type: Requires another professional
- Jurisdiction: Canada wide
The share qualification tests are technical, apply at more than one moment in time, and are measured on figures rather than on impressions. Nothing here says whether any particular company qualifies.
How it works
The definition sits at ITA s.110.6(1) and it is a proportion test. It asks what share of the company's value is tied up in the active business, and it asks the question at more than one point in time rather than once.
The cost or the catch
The problem is discovered on the eve of a sale, which is the one moment nothing can be done about it. Fixing composition takes time, and a company that has accumulated quietly for a decade cannot undo that in the month before an offer closes.
Where this answer may not apply
- The tests look back over a period as well as at a moment, so a company can fail on history it cannot now change.
- A group with more than one company is measured differently from a single company.
- Coverage arranged for a purpose the business genuinely needs is not made improper by this, it is made a thing to measure.
- Planning that fixes one test can break another, which is why the sequencing belongs to a tax professional.
What to verify in your own contract
- The company's current asset composition, from the CPA rather than from the bookkeeping file.
- Whether the shares have been tested against the rules recently, and on what date.
- The value accumulating inside every contract the company owns, in writing from each insurer.
- Whether a sale is contemplated within the next two years, since the timing matters.
- What the CPA recommends before any further deposit is made.
Continue to the full explanation
Prepare the questions for a CPA, a lawyer and an insurance professional.
Sources
- Income Tax Act s.110.6(1), Justice Laws Canada, verified 2026-08-30
- Canada Revenue Agency, published guidance on qualified small business corporation shares, verified 2026-08-30
Accountability and disclosure
- Written by
- José Salloum
- Professional capacity
- Financial security advisor, Canadian Wealth Creation Centre Inc., operating as IBC Financial
- Reviewed by
- Tax and corporate tier, reviewed by a qualified Canadian tax professional before publication
- Jurisdiction
- Canada wide
- Last reviewed
- 2026-08-30
- Version
- 1.0
- Compensation disclosure
- Canadian Wealth Creation Centre Inc., operating as IBC Financial, may receive insurer paid compensation if a policy is purchased. It takes the form of first year compensation followed by renewal compensation, and the amount varies by insurer, product, age, premium, contract design, riders and the arrangement with the managing general agency. No single figure would describe every contract honestly, and none is published here.
- Report a correction
- Info@ibcfinancial.com. Write without a policy number, medical information or account details.
Last reviewed 2026-08-30. By Jose Salloum, Financial Security Advisor.