Tax-Savvy Strategies for Business Owners

Hey there, savvy business owners! It’s Bruce from Pension Solutions Canada, and we have some fantastic strategies to share with you if you’re a business owner looking for the most tax efficient way to take money out of your corporation.

I recently had the pleasure of chatting with Jon Hreljac from the Manulife Tax and Estate Planning Team, and let me tell you, it was an eye-opener. We discussed the nitty-gritty of making your corporation’s finances work harder for you, and go through all of the different options you have. So watch the video below, and let’s dive in!

1. Tax-Efficient Withdrawals from Your Corporation

First things first, let’s talk about taking money out of your corporation without giving the CRA a larger slice of the pie than necessary. John shared some invaluable insights on generating the best type of income within your corporation to ensure tax efficiency. Here’s a quick breakdown:

  • Capital Gains: The star of the show. They’re the most tax-efficient type of income, with half being tax-free!
  • Canadian Dividends: A close second, offering a decent tax advantage.
  • Return of Capital & Interest Income: Try to steer clear, as they’re less tax-friendly.
  • Foreign Dividends: The least favorable, with a high tax burden.

Remember, the goal is to keep more money in your pocket and less in taxes, and focusing on capital gains within your corporation can be a game-changer.

2. Why Less Can Be More: The Magic of Low-Payout Funds

Next up, we explored an intriguing concept: funds that don’t pay out much annually. Sounds counterintuitive, right? Well, not exactly. John explained that funds with minimal annual payouts, like the Manulife Global Equity Private Segregated Pool, can be a boon for corporation owners. Here’s why:

  • Lower Taxable Income: Less annual payout means less income you need to report and, consequently, less tax to pay.
  • Strategic Growth: Your investment can grow more significantly over time, as you’re not being nibbled away by taxes on distributions.

It’s a classic case of slow and steady winning the race. By choosing funds with lower annual payouts, you’re setting yourself up for more substantial long-term growth.

Think Warren Buffet and Berkshire Hathaway. Mr. Buffet does not pay out dividends. Period. “I can manage the money better than you.” So, if you own a share or 2, you are not taxed on growth every year. Growth accrues. Same for our Global Equity Pool.

3. Annuities: Locking in High Returns for the Future

Last but certainly not least, we touched on the hot topic of annuities. With interest rates being relatively high, it’s an opportune time to consider locking in an annuity. Here’s the scoop:

  • High Returns: Annuities can offer returns as high as 10%, depending on when you plan to retire.
  • Guaranteed Income for Life: Once you’ve locked in an annuity, you’re set with a steady income stream for life.

And here’s a pro tip: consider a prescribed annuity for level taxation over the years, allowing for a more predictable financial planning landscape.

Next Steps

I hope these strategies have helped to make your corporation’s finances work smarter, not harder. Whether it’s optimizing tax efficiency, choosing the right investment funds, or securing your future with annuities, there’s a wealth of opportunities at your fingertips.

If you’re keen to explore these strategies further and tailor them to your unique situation, don’t hesitate to reach out and book a call with me. At Pension Solutions Canada, we’re all about helping you navigate the complex world of finance with ease. Let’s make your business’s financial health our next success story!

Until next time, stay savvy!

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