Most business owners are big on cutting costs to save money. However, only a few know how to maximize their corporations to enjoy great investment and tax-saving opportunities. Does this describe you? You are at the right place. Read on to learn five corporation-based strategies that maximize investment gains and minimize taxes.
5 Tax-Saving Corporate Investing Strategies
- Earn dividends instead of salaries.
Contrary to popular belief, paying yourself a dividend is more beneficial than earning salaries. For instance, you do not have to pay into your Canada Pension Plan if you earn a dividend. This way, you can keep up to $6,000 in your corporation to invest as you wish. At that rate, you can expect about $240,000 in 40 years and better control over your savings.
- Avoid pulling money out of your corporation.
The second strategy is to ensure you keep as much money as possible in your corporation. Business owners often move their corporation’s money into a Retirement Savings Plan (RSPs). Unfortunately, this is a wrong move, and here is why: while withdrawals from your corporation account are tax-free, every withdrawal from your RSP attracts a 50% tax rate. This means you remit 50% of the money back to the CRA. Conversely, taking money out of your corporation as dividends attracts less income tax.
- Invest in investments offering capital gains.
Investments like stocks, corporate class mutual funds and real estate are great examples of capital gains-producing investments. Ottawa CFPs often recommend these capital gains because their tax rates are more favorable than interest or dividend income.
In addition to lowering your payable tax, capital gains also allow you to create Capital Dividend Account (CDA) credits, through which you can withdraw money from your corporation without tax.
- Use corporate dollars for your life insurance premium.
Your corporation should be the owner and payer of your life insurance premiums. With this arrangement, you can easily pay your premiums with corporate dollars and enjoy the lower tax rates (11% in BC). If you pay with your personal money, the tax rate could be as high as 50%. Therefore, if done correctly, you can save considerable money on taxes.
- Invest in corporately-owned whole life insurance.
Here is another way to save taxes – adopt corporately-owned whole life insurance. This strategy eases tax burdens on you and your family on demise. How? When a business owner dies, the remaining cash in the corporation account is expected to go into the CRA. However, if such a business owner invested in corporately owned whole life insurance, the money will go to their family or their preferred charity upon death. Corporately-owned life insurance is also one of the tools to create a tax-efficient retirement.
Final Thoughts: Corporate Investing Strategies Takes You Closer to your Financial Goals
All five strategies mentioned above will help you a lot in your quest to achieve your financial goals. Implement them with the help of your Ottawa-certified financial planner and watch your tax reduce and your savings grow today, tomorrow, and even when you are no more. This move will also transform your quality of life and ensure steady growth.
Are you interested in learning more about our financial planning process? Call us today to schedule an appointment.
