# Investing within a corporation, what are the most tax-saving investment strategies?



## keepathomas (Jul 12, 2012)

I would like to invest the money that I have saved inside of my corporation, but I would like to learn more about the best investment strategies within a corporation in order to pay the least amount of income taxes.

My ideal situation would be that most of my money is invested within my corporation and I let it grow, then at some point, I would start taking money out, almost like an RRSP, at the lowest personal tax bracket... But are there strategies I can take advantage of to pay less in income taxes? Also, are there products or investments that are designed for corporations?

One thing I thought of would be the following:
For example, when investing in blue chip stocks within a corporation, the eligible dividends are taxed at 33%, but when these same dividends are paid out to my personal account from the corporation within the same year, the corporation would receive a refund on the 33% paid, and I would pay the tax rate of the dividends at the personal level which would be significantly lower right? So, would it make sense to, every year, pay out all the dividends received within the corporation to the personal account? Am I understanding this correctly?

Also, are there any other tax saving investment strategies when investing within a corporation? Are there specific things I can do to avoid paying high taxes?

My goal is really to have the MOST tax efficient investment strategy.

Any comments or advice or suggestions or even criticism would be appreciated!

Thanks!


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## Nerd Investor (Nov 3, 2015)

keepathomas said:


> I would like to invest the money that I have saved inside of my corporation, but I would like to learn more about the best investment strategies within a corporation in order to pay the least amount of income taxes.
> 
> My ideal situation would be that most of my money is invested within my corporation and I let it grow, then at some point, I would start taking money out, almost like an RRSP, at the lowest personal tax bracket... But are there strategies I can take advantage of to pay less in income taxes? Also, are there products or investments that are designed for corporations?
> 
> ...


You've already touched on it, but as you noted, you'll find that _Canadian_ dividend income earned in a corporation is essentially tax neutral (meaning if you pay it out, it's fully refundable at the corporate level when the dividend flows out to individual shareholders). Paying out all the dividends to yourself every year to recover that tax is a decent rule of thumb, especially if your personal income not exceedingly high. Otherwise, you can play with the timing a little bit as well since that recoverable tax never goes away. (ie: if you have really high income this year, but you're retiring and expect it to be much lower next year, you could delay your dividend payment until then and wait to recover the tax). 

So overall, if you focus on Canadian dividend income and capital appreciation, that will generally be the most tax efficient securities to hold in a corporate portfolio. Anything that generates interest or other investment income (including US/foreign dividends) are what you would want to avoid if your only concern is minimizing Canadian income tax. 

Just a disclaimer though, even though you've said you're only focused on income tax, just be careful about letting tax wag the dog. Just because a 100% Canadian Equity portfolio might be the most tax efficient, doesn't mean it's the most appropriate asset allocation for a portfolio. Hopefully in the big picture (ie: including personally held investments) you maintain an asset allocation that makes sense for you.


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## mustfirstregister (Feb 5, 2018)

Nerd Investor said:


> You've already touched on it, but as you noted, you'll find that _Canadian_ dividend income earned in a corporation is essentially tax neutral (meaning if you pay it out, it's fully refundable at the corporate level when the dividend flows out to individual shareholders). Paying out all the dividends to yourself every year to recover that tax is a decent rule of thumb, especially if your personal income not exceedingly high. Otherwise, you can play with the timing a little bit as well since that recoverable tax never goes away. (ie: if you have really high income this year, but you're retiring and expect it to be much lower next year, you could delay your dividend payment until then and wait to recover the tax).
> 
> So overall, if you focus on Canadian dividend income and capital appreciation, that will generally be the most tax efficient securities to hold in a corporate portfolio. Anything that generates interest or other investment income (including US/foreign dividends) are what you would want to avoid if your only concern is minimizing Canadian income tax.
> 
> Just a disclaimer though, even though you've said you're only focused on income tax, just be careful about letting tax wag the dog. Just because a 100% Canadian Equity portfolio might be the most tax efficient, doesn't mean it's the most appropriate asset allocation for a portfolio. Hopefully in the big picture (ie: including personally held investments) you maintain an asset allocation that makes sense for you.




Just trying to understand. Are you saying If I invested my corporation money in stocks and
1) If I receive a T3 ($155) form. I withdraw the $155 out of my corp account. This amount adds up to my personal income? 

2)If I keep the dividend ($155) in the corporation account I can withdraw it years later? Like 10 years later? My income is $100K+/year. Trying to pay less taxes.


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## Nerd Investor (Nov 3, 2015)

mustfirstregister said:


> Just trying to understand. Are you saying If I invested my corporation money in stocks and
> 1) If I receive a T3 ($155) form. I withdraw the $155 out of my corp account. This amount adds up to my personal income?
> 
> 2)If I keep the dividend ($155) in the corporation account I can withdraw it years later? Like 10 years later? My income is $100K+/year. Trying to pay less taxes.


Yes, you can wait as long as want to pay it out as a dividend. Basically over 10 years the refundable tax component would keep growing and then you would get it back in corporation as you pay out dividends to yourself.


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## mustfirstregister (Feb 5, 2018)

Nerd Investor said:


> Yes, you can wait as long as want to pay it out as a dividend. Basically over 10 years the refundable tax component would keep growing and then you would get it back in corporation as you pay out dividends to yourself.


If i don't pay out the Stock Dividend I received from my long term stocks investment. Do I have to declare what I received in the Schedule 3 for or in the total asset (Sch100)?


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