We all want to save money wherever we can, right? The good news is there are a lot of corporate investing strategies that can save you thousands in taxes.
Too many business owners don’t properly utilize their corporations when it comes to current, future, and end-of-life investment and tax-saving opportunities.
If you want to maximize your investments and save taxes using your the power of your corporation, let’s jump into the five corporate investing strategies.
5 Corporate Investing Strategies to Save Taxes
1. Pay yourself a dividend
Let’s start with what you can do today: Make sure you pay yourself a dividend and not a salary.
Paying yourself a dividend will save you from having to pay into Canada Pension Plan. It will allow you to keep approximately $6,000 inside your corporation to invest however you want. With that, you can save $240,000 over 40 years, and have more control over your savings.
2. Keep as much money as you can inside your corporation
Do not pull money out of your corporation to put into Retirement Savings Plans (RSPs).
If you decide to take money out of your corporation to put in an RSP, you will have to give half of that back to the CRA. Although you took the money out of your corporation tax-free, when it comes time to withdraw money out of the RSP, you will be paying up to a 50% tax rate.
If you keep the money in your corporation, you pay less income taxes by taking it out as dividends.
Interested in learning more about why business owners should not use RSPs? We have an entire post (including a video) on the subject here: Why Successful Business Owners Should Not Use RSPs.
3. Invest in capital gains-producing investments
Make sure to invest in capital gains-producing investments such as stocks, real estate, and corporate class mutual funds. Capital gains are taxed at a much more favorable rate than dividend or interest income.
Capital gains lower your tax payable and create Capital Dividend Account (CDA) credits for you to take tax-free money out of your corporation.
4. Pay life insurance with corporate dollars
Make sure that your corporation owns and pays for all your life insurance.
Having your corporation as the owner and payer of your life insurance policies means you will pay the life premiums with dollars that are taxed at 11% (in BC), as opposed to your personal tax rate, which could be as high as 50%.
This is a frequently overlooked method to save taxes, but it’s one that can pay off in a big way.
5. Consider investing in corporately owned whole life insurance
This final tip helps you and your family with taxes upon death: Look into corporately owned whole life insurance.
This is a great strategy for business owners to ensure that the money left inside your corporation will go to your family or the charity of your choice, as opposed to CRA. Corporately-owned life insurance can also be used to help create a tax-efficient retirement.
(While we’re on the subject of life insurance, when did you last revisit your policy? We talk about why it’s time to reevaluate your coverage and much more in this post: Life Insurance for Business Owners: Why It’s Time to Revisit Your Policy.)
Achieve Your Financial Goals With Corporate Investing Strategies
If you own a corporation and you’re not implementing most of these strategies right now with the help of a financial advisor, you’re missing out on saving money today, tomorrow, and at death. Ultimately, it will impact your quality of life and your ability to achieve your goals.
If you want to learn how to maximize your investments and pay less tax, book a call we’d love to run you through our financial planning process.
Watch the video on this strategy
Did you learn a lot about corporate investing strategies in this post? Here are three posts to read next:
- Take Advantage of Your Corporate Structure
- Growing An Investment Portfolio Inside Of Your Corporation
- 3 Ways To Pay Less Taxes As A Canadian Business Owner
This post was first published in 2020, but it was updated in 2021 just for you.