Entrepreneurship & Small Business

Investments in a Corporation

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  • Nov 22nd, 2009 10:47 am
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[OP]
Newbie
Apr 8, 2009
82 posts
1 upvote
Vancouver

Investments in a Corporation

Does anyone know how stocks/bond capital gain and dividend income is taxed when the investments are held in a corporation? I thought I remember someone saying the tax is much harsher then when the investments are in a personal account.
9 replies
Deal Addict
Oct 4, 2009
1541 posts
7 upvotes
doc79 wrote: Does anyone know how stocks/bond capital gain and dividend income is taxed when the investments are held in a corporation? I thought I remember someone saying the tax is much harsher then when the investments are in a personal account.
Corporate taxes are lower than personal taxes, depending on your personal income of course. It's better to keep it in the corporation from what I've seen.. Plus you get your write-offs to help offset the hit.
Deal Expert
Feb 29, 2008
29075 posts
4768 upvotes
Montreal
doc79 wrote: Does anyone know how stocks/bond capital gain and dividend income is taxed when the investments are held in a corporation? I thought I remember someone saying the tax is much harsher then when the investments are in a personal account.
Capital gains are treated most favorably, and interest income, in some cases can be treated even in worse then when personally held.

I looked at this up and down, and I'm not convinced one way or the other. The rules are way to complex for me to even understand. I have not yet decided if I should pay myself a salary and invest tax deferred in an RRSP, or pay myself in dividends and pay taxes on investments held in the corporation. Another option is to create yourself an Individual Pension Plan and invest the money there.

You need to find a competent professional who fully undertsands both taxation issues, and financial planning. Sadly, I haven't found one yet.
[OP]
Newbie
Apr 8, 2009
82 posts
1 upvote
Vancouver
mr_raider wrote: Capital gains are treated most favorably, and interest income, in some cases can be treated even in worse then when personally held.

I looked at this up and down, and I'm not convinced one way or the other. The rules are way to complex for me to even understand. I have not yet decided if I should pay myself a salary and invest tax deferred in an RRSP, or pay myself in dividends and pay taxes on investments held in the corporation. Another option is to create yourself an Individual Pension Plan and invest the money there.

You need to find a competent professional who fully undertsands both taxation issues, and financial planning. Sadly, I haven't found one yet.
Yeah Raider it is complex, and I've talked to many people about the salary vs. dividend issue and you will get a different answer almost everytime. It does depend somewhat on your personal situation. For physicians in BC at least, we mostly use a combination of both. I did get my accountant to do a breakdown of taxes paid in a variety of dividend vs. salary combinations and in the end, the difference in taxes paid in each scenario was not all that different.
Deal Addict
Oct 4, 2009
1541 posts
7 upvotes
dealon wrote: **SNIP***. Still, that pretty much answers your question.
It answered a few of mine too. Thanks very much for all the insight and facts in your post. I've been looking at various ways to deal with my "rainy day" fund without getting nailed everywhere I turn.

Excellent info there and a huge help. Thanks.

If you get a chance and are interested in PMing me, one of the things I've been looking at is taking the funds and moving them into Manitoba Telecom. As you're familiar with investments and money matters, you'd probably understand why.

I could really use a few pieces of wisdom there. My accountant says don't do it.. He tends to be uber conservative and airs on the side of caution. I'd love your thoughts.
Deal Expert
Feb 29, 2008
29075 posts
4768 upvotes
Montreal
doc79 wrote: Yeah Raider it is complex, and I've talked to many people about the salary vs. dividend issue and you will get a different answer almost everytime. It does depend somewhat on your personal situation. For physicians in BC at least, we mostly use a combination of both. I did get my accountant to do a breakdown of taxes paid in a variety of dividend vs. salary combinations and in the end, the difference in taxes paid in each scenario was not all that different.
I'm a physician too, and incorporated my practice this summer. My accountant is pushing hard an all dividend strategy that will minimize taxes paid. However, when I ask him what to do with the huge sums retained in the corp, he mumbles something about structured corporate mutual funds.

My planner is pushing me to raise my salary to 45k to get the max CPP benefit, or even to 120k to max out my RRSP. However, if you are above 40, the best option seems to be an individual pension plan.

Currently, I'm leaning towards holding fixed income within my personal accounts, and capital gain generating securities in the corporation.
[OP]
Newbie
Apr 8, 2009
82 posts
1 upvote
Vancouver
Yeah, in BC we have to take partial salary because the BCMA gives us some RRSP matching so we need some RRSP room. Cash left in the corp is used for equity investments and property investments. I don't know too much abou the IPP. It was my impression all the money in the corp becomes in essence the retirement fund. Most of my colleagues have pretty massive equity investments in their corporations, but I'm not sure they know exactly what they are doing.
Member
User avatar
Jan 22, 2008
271 posts
15 upvotes
Burlington
All investment income earned and retained in a corporation is taxed at between 39% and 49% depending on your province. In most provinces the actual tax rate for investment income held in the corporation ends up being 1 to 2 percetage points above the top personal tax rate.

So, when companred to an individual, it is better to invest personally. But he dilema is that when you draw money out of a corporation, you face an immediate tax hit for the withdrawal. In most cases you're better off leaving the investments in the corporation.
Deal Addict
Oct 4, 2009
1541 posts
7 upvotes
TopTaxGuy wrote: All investment income earned and retained in a corporation is taxed at between 39% and 49% depending on your province. In most provinces the actual tax rate for investment income held in the corporation ends up being 1 to 2 percetage points above the top personal tax rate.

So, when companred to an individual, it is better to invest personally. But he dilema is that when you draw money out of a corporation, you face an immediate tax hit for the withdrawal. In most cases you're better off leaving the investments in the corporation.
What if you pull the money out of the corporation as a dividend or management fee?
Deal Expert
Feb 29, 2008
29075 posts
4768 upvotes
Montreal
npinc wrote: What if you pull the money out of the corporation as a dividend or management fee?
Then you get some of the tax refunded back to you.

For eligible canadian dividends, it comes to the same thing as holding them personally.

If you want to learn more about RDTOH and CDA:

http://dir.rbcinvestments.com/getimage. ... t_id=17535

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