Hey experienced business owners! This is Bruce from Pension Solutions Canadaand we have some fantastic strategies to share with you if you’re a business owner looking for the most tax-efficient way to get money out of your corporation.
I recently had the pleasure of talking Jon Hreljac from the Manulife Tax and Estate Planning Team and let me tell you, it opened my eyes. We’ve discussed in detail how to make your corporate finances work harder for you and reviewed all of the options available to you. So watch the video below and let’s dive in!
1. Tax-saving withdrawals from your corporation
First, let’s talk about withdrawing money from your corporation without giving the CRA a bigger piece of the pie than necessary. John shared invaluable insights on generating the best type of income for your corporation to ensure tax efficiency. Here’s a quick breakdown:
- Capital gains: The star of the show. They are the most tax-efficient type of income, and half of them are tax-free!
- Canadian dividends: A close second, offering a decent tax advantage.
- Return of capital and interest income: Try to stay away as they are less tax friendly.
- Foreign dividends: The least favorable, with a high tax burden.
Remember that the goal is to keep more money in your pocket and less taxes, and focusing on capital gains in your corporation can be a game changer.
2. Why less can be more: the magic of low-payout funds
We then explored an intriguing concept: funds that don’t pay out much per year. Sounds counterintuitive, right? Well, not really. John explained that funds with minimum annual distributions, such as Manulife Global Equity Private Segregated Pool, can be a boon for corporate owners. This is why:
- Lower taxable income: A smaller annual payout means less income you have to report and therefore less tax to pay.
- Strategic development: Your investment can grow significantly over time because you won’t be eaten up by distribution taxes.
It’s a classic case of slow and steady winning the race. By choosing funds with lower annual payouts, you are setting yourself up for more significant, long-term growth.
3. Annuities: securing high future profits
Finally, we touched on the hot topic of annuities. Given relatively high interest rates, now is a good time to consider locking in an annuity. Here’s the scoop:
- High profits: Annuities can offer returns of up to 10%, depending on when you plan to retire.
- Guaranteed income for life: Once you choose an annuity, you’ll have a steady stream of income throughout your life.
Here’s a pro tip: consider a designated annuity to ensure a consistent level of taxation over the years, allowing for a more predictable financial planning landscape.
Next steps
I hope these strategies have helped make your business finances work smarter, not harder. Whether it’s optimizing tax efficiency, selecting the right investment funds, or securing your future with annuities, there are plenty of options at your fingertips.
If you would like to learn more about these strategies and tailor them to your unique situation, please don’t hesitate to reach out and make an appointment with me. On Pension Solutions Canada, our goal is to make it easier for you to navigate the complex world of finance. Let’s make your company’s financial health our next success story!
Until next time, stay tuned!
