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 were to maximize your investments and save taxes using the power of your corporation, let’s jump into five corporate investing strategies.
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 the 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 over $240,000 over 40 years and have more control of your savings.
Keep as much money as you can inside your corporation
Do not pull any money out of your corporation to put into Registered Retirement Savings Plans (RRSPs).
If you decide to take money out of your corporation to put into an RRSP, 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 your RRSP, you will be paying up to a 50% tax rate.
If you keep the money inside your corporation, you pay less income taxes by taking it out as dividends.
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 favourable rate rather than dividend income 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.
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 for your life insurance policies will mean you pay the life premiums with dollars that are taxed at 11.5% in ON, 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.
Consider investing in corporately owned whole life insurance
The 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 money left inside the corporation will go to your family or the charity of your choice, as opposed to the CRA. Corporately owned life insurance can also be used to help create a tax-efficient retirement.
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.
Refer to this Canada.ca website for more information on the CDA account.