Corporate Investing Basics

For Your Client

Your CPA has discussed corporate vs. personal investing with you. This article explains how investment portfolio structure affects tax outcomes over time. For tax advice specific to your situation, consult your CPA.

What This Means for Your Corporate Investments

When your CPA discusses corporate vs. personal investing, they're explaining how tax treatment differs between these two approaches. This article focuses on the investment structure side of that conversation.

The Basic Concept:

Corporate investing offers tax deferral, not tax elimination. The main benefit is that corporate tax rates on active business income are lower than personal rates, leaving more after-tax capital to compound over time.

The Investment Connection:

How you structure your corporate investment portfolio determines:

What types of income you generate (interest, dividends, capital gains)
How that income is taxed inside the corporation
How structure affects tax outcomes over decades

How Corporate Investing Differs from Personal

Personal Investing

Taxed at personal rates
Interest taxed as regular income
Capital gains: 50% inclusion
Dividends: dividend tax credit

Corporate Investing

Taxed at corporate rates
Interest taxed at ~50%
Capital gains: 50% inclusion
Passive income affects SBD

How Investment Income Types Are Taxed

Inside a corporation, different income types are taxed differently:

Interest Income

Corporate tax rate: ~50% (high rate)
Impact: Creates passive income that can affect Small Business Deduction
Example: GICs, bonds, savings accounts

Dividend Income

Corporate tax rate: Varies by type
Impact: Creates passive income that can affect Small Business Deduction
Example: Dividend-paying stocks, dividend ETFs

Capital Gains

Corporate tax rate: ~13-14% (50% inclusion × corporate rate)
Impact: Only 50% counts toward passive income threshold
Example: Growth-oriented investments, corporate-class funds

The key insight: Capital gains are taxed more favorably than interest or dividends in corporate accounts.

How Structure Affects Tax Outcomes

Your investment portfolio structure determines what types of income you generate, which affects:

Current year tax: How much tax you pay this year
Passive income threshold: Whether you exceed the $50,000 threshold
Small Business Deduction: Whether passive income reduces your SBD
Long-term outcomes: How structure affects wealth over decades

Example: Two portfolios earning the same return can have very different tax outcomes based on structure:

Interest-heavy portfolio: Higher tax, affects SBD
Capital gains-focused portfolio: Lower tax, less impact on SBD

Tools That Help Structure Portfolios

Some investment structures can help manage tax outcomes:

Corporate Class Funds

Convert interest/dividends to capital gains
Help keep passive income below $50,000 threshold
Reduce tax drag on distributions

Life Insurance

Tax-exempt growth inside policy
Doesn't count toward passive income threshold
Can build CDA credits for tax-free extraction

Discuss with your CPA: They can help you understand how these tools fit into your tax strategy.

What This Means for Long-Term Planning

Over decades, small differences in tax treatment can add up significantly. Understanding how portfolio structure affects tax outcomes helps you:

Make informed decisions about how to invest corporate surplus
Coordinate investment strategy with your CPA's tax strategy
Optimize total wealth across corporate and personal accounts
Build flexibility to adapt as tax rules or circumstances change

This is not about avoiding corporate investing. It's about understanding how structure affects outcomes over time.

Next Steps: Coordinate with Your Team

With Your CPA:

Understand your current passive investment income
Discuss how investment income affects your tax strategy
Review corporate vs. personal investing trade-offs

With Your Investment Advisor:

Review your current portfolio structure
Understand what income types you're generating
Explore options for managing tax outcomes while still growing wealth

The goal: Coordinate tax strategy (CPA) with investment structure (Investment Advisor) for long-term results.

Important Notes

Tax Advice:

This article explains investment structure concepts, not tax advice
For tax advice specific to your corporation, consult your CPA
Tax rules are complex and subject to change

Investment Considerations:

Past performance does not guarantee future results
Investment structure is one factor among many
Work with your investment advisor to understand options

Professional Coordination:

This article encourages coordination between your CPA and investment advisor
Tax strategy and investment structure work together
Your CPA remains your primary advisor for tax matters

Full Disclosure

This content is for information and education only. It explains general concepts about how corporate investment structure affects tax outcomes, but it is not personalized tax, legal, or investment advice.

Tax Considerations:

Tax rules are complex and subject to change
Corporate tax treatment depends on your specific circumstances, province, and corporate structure
Always consult with a qualified CPA before implementing any tax strategy
Past tax treatment does not guarantee future treatment
Provincial variations in rates and rules may apply
This article does not replace professional tax advice