The Natural Flow of Value, And Why the Government Is Your Largest Beneficiary

The natural flow of value is simple. You deliver to society. Society thanks you back with profit. That profit belongs to your family.

That's how it should work. You build, you create, you serve, and the value you generate flows to the people you built it for.

But the government intercepts this natural flow and taxes it at every turn. Corporate income. Investment earnings. Salary. Dividends. Death.

Your corporation is a tax delay mechanism. It keeps the government at bay for a while, so capital compounds longer inside the structure. That's valuable. But extraction is inevitable: the family is the natural beneficiary of the value you've created.

And extraction is when the government taxes you the most.

Corporate tax on active income? Roughly 12-27%, depending on the province and the small business deduction. Passive income inside the corp? Up to 50%.

But extraction - dividends, salary, deemed disposition at death - that's the full freight. Combined corporate and personal tax of 40-53%.

The government doesn't care how much you've accumulated in the corporation. It cares what you take out. And that's where it collects.

We are in a distorted reality. But there are still a few effective measures we can take to mitigate the distortion.

Accidental vs Planned

Here's a distinction that affects outcomes.

Extraction happens one of two ways.

Accidental extraction is forced by events you don't control - death, disability, retirement, a forced sale. When it's accidental, you have no leverage. You pay what you must, when you must, at the rate the government dictates.

Planned extraction is structured over time to minimize the government's share and maximize the family's benefit.

The difference between the two can be millions of dollars. Not a figure of speech. Math.

The Most Profitable Investment You Could Ever Make

You've spent decades building your business. Optimizing operations. Serving clients. Growing revenue.

But the few hours, days, or weeks you spend on extraction strategies - working with your CPA, lawyer, and advisor - might generate higher returns than any operational decision you've ever made.

Your effort in structuring extraction may be the single most profitable investment you ever make. You owe it to yourself and to your family - the preservation of the value you've built over decades.

"But I Maximize Investment Returns - Isn't That Enough?"

This is the argument I hear most often. "Anton, I'm focused on growing the portfolio. I get strong returns. That matters more than any tax strategy."

Maybe. But consider what the tax is actually costing you on that growth.

If you earn 10% annual returns inside a life insurance contract - tax-sheltered - to get the same after-tax estate value in a non-registered corporate account, you need roughly 15% average annual returns. For 35 years. From age 50 to 85.

You might have gotten 15% in the last few strong years. Can you sustain that for three and a half decades?

I'm not saying move everything under an insurance contract. But having both - insurance-based strategies and a non-registered portfolio - may deliver fundamentally different results to the estate. Same markets. Same risk. Different tax treatment.

Why not have the same growth, but sheltered from tax?

That's the argument for insurance-based extraction strategies. Not instead of investing. In addition to it.

Returns matter. But after-tax, after-extraction returns are what the family actually receives.

Not All Strategies Are Equal

The most tax-efficient extraction strategies are insurance-based. Corporate life insurance flowing through the Capital Dividend Account. Insured retirement programs using policy loans. Disability income from permanent life insurance cash values. Critical illness insurance structured as split-dollar. These can reduce the tax on extraction to zero - not defer it, eliminate it.

But they require time and insurability. You can't retrofit them at 70.

Below that, you have structural tools - estate freezes, HoldCo/OpCo separation, capital gains through the CDA. These reduce the rate. They help. They're not transformational.

Then come the optimization and delay mechanisms - RDTOH with eligible dividends, salary vs. dividend timing, family trusts for income splitting. These are incremental. They save 5-15% at the margin. Worth doing, but not the game-changer.

And at the bottom? Post-mortem patches. Pipeline strategies. Subsection 164(6) elections. These are cleanup tools you deploy after the fact - a cork you use to stop water from infiltrating a broken ship. CRA challenges them routinely, and they require near-perfect execution at the worst possible moment.

If your strategy depends on post-mortem fixes, you've already lost the extraction game.

The Window Is Closing

Most doors for efficient tax extraction have already closed. The 2018 reforms tightened passive income rules and insurance policy testing. Capital gains inclusion rate changes continue to be discussed. Future dividend tax increases are plausible.

Life insurance and related strategies remain partially open. But even this door is narrowing. And your insurability window - your health, your age - shrinks every year regardless of what Ottawa does.

The strategies that preserve the most value require the earliest action.

The Choice

You've built wealth in your corporation. That wealth belongs to your family - it's the natural endpoint of the value you've created.

But between your corporation and your family stands the government. It will intercept as much of that flow as you allow.

Would you allow your wealth to drain to tax because of accidental extraction? Or would you structure it deliberately to maximize what reaches your family?

The government is your largest beneficiary - unless you decide otherwise.