Most incorporated business owners leave retained earnings idle inside their company. There are better options — and a smarter strategy can make a significant difference.
If you’re incorporated, every dollar sitting in your corporation is an opportunity. Rather than just leaving retained earnings in a business account earning minimal interest, there are proven, CRA-compliant strategies that can grow that capital tax-efficiently — and protect it for the long term.
These aren’t aggressive tax schemes — they’re structures the CRA recognizes and that high-net-worth business owners use every day. Here’s what’s available to you.
Put your retained earnings to work in a corporate investment account. Instead of earning 2–3% in a business savings account, your capital can be invested in a diversified portfolio. The tax deferral advantage of keeping earnings inside the corporation — versus paying yourself a salary and investing personally — can compound significantly over time.
One of the most powerful and underused corporate tax strategies. A permanent life insurance policy owned by your corporation can grow its cash value tax-free. On death, the death benefit passes to your estate through the Capital Dividend Account — tax-free. It’s effective for both wealth accumulation and estate transfer.
A holding company (HoldCo) can protect your assets, facilitate income splitting with family members, and allow you to move money between entities tax-efficiently using the inter-corporate dividend exemption. It also provides a layer of creditor protection for your accumulated business wealth.
An IPP is a defined benefit pension plan set up for an incorporated business owner or key employee. Contribution limits are significantly higher than an RRSP — often 50–100% more — and contributions are fully deductible to the corporation. It’s one of the most efficient retirement vehicles available to incorporated Canadians.
Once your corporation earns more than $50,000 in passive investment income, the small business deduction begins to claw back — costing you the preferred 9% corporate tax rate. A well-structured strategy keeps your passive income below the threshold and your tax rate low.
Timing when and how you realize gains inside your corporation — or structuring a sale of your business to use the Lifetime Capital Gains Exemption (LCGE) — can mean the difference of hundreds of thousands of dollars in tax. Proper planning here starts years before any transaction.
These strategies are most relevant if you fall into one of these categories.
Doctors, dentists, lawyers, and consultants with surplus income in their corporation
Owners considering a sale or succession who want to maximize after-tax proceeds
Owners with retained earnings building up and no clear strategy for those funds
Multi-generational businesses looking to transfer wealth efficiently to the next generation
There’s no hard minimum, but most of these strategies start making a meaningful difference once you have $50,000 or more in retained earnings — or are consistently generating surplus income inside your corporation each year. We’ll assess your situation and be upfront about what makes sense.
Yes. Every strategy we recommend is fully compliant with Canada Revenue Agency rules. Corporately-owned insurance, holding companies, IPPs, and corporate investment accounts are standard tools used by thousands of Canadian business owners. We do not recommend anything that resembles an aggressive tax shelter.
For some strategies — like setting up a holding company or an IPP — yes, a corporate lawyer and/or accountant will be involved. We work collaboratively with your existing advisors, or can refer you to professionals we trust if you don’t have one.
Both are registered plans that grow tax-deferred, but an IPP is specifically for incorporated business owners and allows significantly higher annual contributions. The corporation makes the contributions (not you personally), the contributions are fully deductible, and the plan provides a defined benefit at retirement. For business owners over 40, the difference in contribution room over a RRSP can be substantial.
Accountants focus on tax compliance — filing returns, managing HST, structuring your payroll. Financial advisors focused on corporate strategy look at how your assets are invested and structured going forward. The two roles complement each other, and the best outcomes happen when both are working together.
