Investing using a Canadian Controlled Private Corporation (CCPC) can come with a number of investing dilemmas. In this episode, we apply some of the knowledge base from the main episodes on corporate investment taxation and investing strategy.
We’ve picked three cases highlighting common investing questions that people face trying to mesh their investment strategy within a corporation. Both in terms of how to fit their corporation in with other personal accounts and what strategies to use for balancing tax-efficiency and investment performance.
The idea is that you will consider how the situations apply to you. It is not specific advice, but hopefully, you can relate to aspects of them and use that in your own thinking or with your advisor.
Case 1: Fitting a Corporation, TFSA, & RRSP Together
Case 2: Will You Get Corporate Bloat?
Case 3: Over-Focus on Eligible Dividends & Capital Gains
“There’s a common piece of advice to just keep everything in the corporation. You have to weigh that against taking money out to invest in other accounts, like your personal RRSP and your TFSA. ”
@LoonieDoctor
“This person, because of the way that they’ve saved, they have multiple buckets to draw from for their retirement income.”
@benjaminwfelix
“Money needs to come out of a corporation at some point. Tax deferral works best when you defer at a higher rate and take money out at a low rate. The larger your corporate investment portfolio gets, the harder it is to get money out at those lower rates.”
@benjaminwfelix
“Better to pay a bit more tax, because you made a lot more money.”
@LoonieDoctor
How does the increased inclusion rate on capital gains in a corporation affect the CDA and the associated tax planning?
Hey AlphaDoc,
Working on it. Both on my own and with Ben for The Money Scope. There are some good opportunities to plan.
Mark
And it looks like horizons Canada and US (especially) would be nearly identical to an RDTOH releasing corporation until you hit the extreme timeframes of deferral. Maybe HXDM still useful but impacted negatively?
Good news for IPP’s and personal borrow-to-invest strategies, relatively speaking, it would seem too. And gains harvesting prior to the telegraphed implementation date in June.
Yeah. I figured this would happen to “fix” the Horizon advantage. Cap gains harvesting looks attractive, but doing a more fulsome analysis. It also depends on your future personal tax rate.
Mark
If you harvest capital gains before June 25th, you do exactly what the gov wants you to do. Give them the extra tax and make them look good before the next election. I think that the delay till June was deliberate to extract maximal tax income. If these changes had been applied with the budget date or even retroactively, then most professional corps would have done nothing.
Another curveball for the professionals, and not an easy one. Assuming 1M of unrealized cap gains, I would roughly estimate a tax liability of 250K with the current 50% inclusion rate. This is 250K of capital that will evaporate and will no longer be available to produce dividend income for those of us who planned to retire with savings from the corp. And I assume most professionals close to retirement after long careers have much more accumulated gains, which are also partially due to inflation.
One advantage of forced liquidation would be more freedom. Easier to leave Canada if incessant tax attacks on business owners continue. I have a double citizenship, so this adds another piece to the puzzle for retirement. Otherwise, I would just leave everything as is and keep living off dividends in retirement.
I apologize for the long rant. The inability to plan for the future and the constant rule changes since the liberal government took over have been wearing me off.
Hey Mai,
That was one of my first thoughts too. Broken tax policy that busts tax integration – a pillar of our tax code. But, political genius move. Get a revenue bump just before an election. If they win, they have years to sort it out. If not, the next government will hold the bag as revenue drops for a few years.
What to do as an individual or corporation will be complex. Depending on timeframe and a bunch of other variables, the tax hit might be made up for by keeping tax-deferred growth compounding. Working on it. Don’t worry about the rant. I did some rage-blogging with the last attack on corporations. It is frustrating. Since then, we’ve been careful to keep our tax liability mitigated by using a variety of personal accounts and strategically moving money out of our corp.
Today’s deficits are tomorrow’s taxes – so I think this isn’t the end.
-LD