Episode 186: Protect Your Profits: Why Corporate Class ETFs Belong in Your Portfolio

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Are you unknowingly overpaying tax on your investments—just because of how they’re structured?

If you’re a high-income Canadian or incorporated business owner, you already know how punishing taxes can be on your investment gains. Maybe you’ve maxed out your RRSP and TFSA leaving your remaining dollars are sitting in non-registered accounts or inside your corporation—exposed to annual taxes on dividends, interest, and capital gains.

Worse yet, every dollar of taxable income could push you into a higher bracket or chip away at your corporation’s access to the Small Business Deduction. Even with solid investment picks, your after-tax returns might be falling short because the structure itself is working against you.

In this episode, we highlight a smarter way to grow wealth without triggering taxes every year: corporate class ETFs. This isn’t about beating the market—it’s about keeping more of what you earn by choosing investment vehicles that defer taxation and minimize distributions. If you’re tired of paying tax on income you’re not even spending, and want more control over when the CRA gets paid, this episode is for you.

In this episode, you’ll learn:

• What corporate class ETFs are and how they legally delay taxes—giving you more control over when you pay.
• How they help incorporated business owners reduce passive income taxation and protect access to the Small Business Deduction.
• Why they can outperform after-tax despite ultra-low MERs—and why they’re not the right fit if you’re using the Smith Maneuver.

If you’re investing through a corporation or holding a large non-registered portfolio, press play now to learn how corporate class ETFs could become your most tax-efficient investing edge.

Resources:

• Ready to take a deep dive and learn how to generate personal tax free cash flow from your corporation? Enroll in our FREE masterclass here. 
• Book a Discovery Call with Kyle to review your corporate (or personal) wealth strategy to help you overcome your current struggle and take the next step in your Canadian Wealth Building Journey!
• Discover which phase of wealth creation you are in. Take our quick assessment and you’ll receive a custom wealth-building pathway that matches your phase and learn our CRA compliant tax optimized strategies. Take that assessment here.
• Dig into our Ultimate Investment Book List
• Follow/Connect with us on social media for daily posts and conversations about business, finance, and investment on LinkedIn, Instagram, Facebook [Kyle’s Profile, Our Business Page], TikTok and TwitterX. 
  

Calling All Canadian Incorporated Business Owners & Investors:

Consider reaching out to Kyle if you’ve been…

• …taking a salary with a goal of stuffing RRSPs;
• …investing inside your corporation without a passive income tax minimization strategy;
• …letting a large sum of liquid assets sit in low interest earning savings accounts;
• …investing corporate dollars into GICs, dividend stocks/funds, or other investments attracting cordporate passive income taxes at greater than 50%; or,
• …wondering whether your current corporate wealth management strategy is optimal for your specific situation.

Financial freedom in Canada takes more than income — it takes strategy. Whether you’re a seasoned entrepreneur, high-earning professional, or building wealth through real estate, mastering the four phases of a healthy financial plan is non-negotiable. This podcast unpacks the smartest Canadian tax strategies, corporate structuring moves, and investment tactics that create lasting wealth. From optimizing RRSP room and leveraging real estate to balancing salary vs dividends and planning your legacy, we focus on actionable insights tailored for business owners and investors. Each episode gives you the tools to align your personal financial buckets with your business goals and use a proven Canadian wealth blueprint to future-proof your finances. Follow Frederick, a disciplined 49-year-old professional in Toronto, as he earns near-perfect marks on his Canadian financial health assessment — and uncovers where even top planners need to improve. Learn how modest living, real estate investing, and precision financial vision-setting can accelerate your path to early retirement and long-term security.

Transcript:

If you’re a high income Canadian or a business owner sitting on retained earnings, chances are you’re looking for smart ways to grow your money without handing half of it over to the CRA. In today’s episode, we’re going to unpack the power of corporate class ETFs. What are they? How do they work? And how can they save you potentially tens of thousands in taxes depending on your own personal situation?

But be warned, not every strategy, as you know, works for every investor. And today, that’s gonna be especially true if you are someone who’s using the Smith maneuver or planning to do so in the future. All right, let’s dig into corporate class ETFs. All right, Canadian wealth secret seekers, as mentioned, we’re gonna dive in here. Let’s chat a little bit about corporate class ETFs.

Now, most ETFs are structured as trusts. That means they flow income out to investors each and every year. And a lot of times this is done so through dividends, right? So you probably know blue chip stocks. We’ve got a lot of people who are dividend investors. We’ve discussed on previous episodes about dividend stocks and dividend funds and how potentially they can be positive, but they can also be negative depending on how you’re utilizing them.

With a corporate class ETF, they are structured differently. They group multiple ETF strategies under a mutual fund corporation structure. Now for some of you, you’re gonna immediately go, whoa, whoa, whoa, I heard mutual fund and everything I hear is mutual funds are bad and ETFs are good. Well, that’s why we’re utilizing this term corporate class ETFs because they’re really designed to act a lot like ETFs, low fees and such, but we get some of the

benefit of being a mutual fund corporate structure, which means the fund can internally rebalance gains and losses to minimize distributions. Now I say minimize distributions because every fund could be different and it could be structured differently. However, what you’re trying to do typically with this type of ETF is instead of receiving taxable interest or dividends, you may receive

deferred capital gains or return of capital, for example. And the goal here is not to get taxed until you sell typically. Okay, so of course, every situation is a little bit different, but this is how they are structured. This is why they are such a great game changer for high income earners and incorporated business owners here in Canada.

for our high income Canadians, I mean, you know, you’re just a T for him. I say just not me not meaning it like you’re just but you don’t have the complexity of a corporate structure. You’re a T for income earner, but you’re in a high income tax bracket and you have investments in non registered accounts. Well, guess what, if you’re someone who’s already maximized their tax free savings account, maybe you’ve maximized the RR SP or maybe you’re not utilizing the RR SP because of some other reasoning. Maybe there’s some

or strategy you have in mind, and you’ve been investing in non-registered accounts, a lot of the ETFs that are out there oftentimes, especially if we’re talking about a fund of many companies, there will be some dividend distributions, which means those dividends are gonna be taxed at a very high amount. Now, this is true even for people who are doing a drip strategy. So a dividend reinvestment strategy,

when people are taking dividends every year to buy more of that same dividend paying stock or ETF or whatever it might be, the problem is, though dividends are still being taxed. So if you’re a high income earner, if you’re a net or not net, but your marginal tax bracket is, know, 35%, 40 % higher, 45 % or even higher than that, you’re losing that percentage of the dividend that’s being paid, even if it’s being reinvested.

So that’s a problem because that’s actually like sort of, you know, chopping out your returns at the knees, meaning your compounding is actually not being as aggressive as you might like to see. So a great example, if we look at a stock like say Enbridge, you know, very, very blue chip stock here in Canada, you know, focused in energy and natural gas, for example, and the actual servicing and transportation of that natural gas.

When you look at the dividend, and let’s say the dividend’s 5%, I actually believe it’s a little higher than that, but let’s say it’s 5%. And every year you’re taxed in the marginal tax bracket of around 50%, you’re really getting 2.5 % that gets reinvested into buying more Enbridge shares. That is a problem. know, I’ve got a lot of people that reach out to us all the time, and their biggest concern is the MER fees, right? You hear it all the time. People are saying if…

you pay a financial advisor 1 % or 2 % or whatever that percentage is every year, you’re obviously, you know, sort of chopping out your compounding at the knees because you’re losing some of the returns that you should have had. Well, the same is true here in a reinvestment strategy. If these dividends are being paid out and you’re only receiving about half of them to reinvest, that dividend is being chopped in half every year and that’s not necessarily great.

Now, why this is helpful for incorporated business owners as well is that inside of your corporation, unless you have an IPP or a PPP setup, which is kind of like an incorporated business owners, RRSP, some pros and cons to it. For those who are interested, we will be doing some episodes on this. The reality is, is that all those investments are being taxed in essentially the highest tax bracket. So the same is true for the high income

earning T4 employee in an unregistered account. The same is true for an incorporated business owner who chooses to make the same decision. So the Enbridge scenario is the same inside the corporation. Now there are some nuances, Canadian dividends are taxed a little bit differently, a little bit more favorably and so forth. But if we just suggest that there is going to be some tax and therefore the dividends are, you know, the full dividend isn’t going to be received an easy way around this.

is to explore corporate class ETFs where we can own some of the same assets. You can own the exact same assets inside some of these funds. Now you might not be able to get as nuanced or as specific. If let’s say you only like 10 different dividend paying stocks, you may not be able to find a corporate class ETF that has just those 10 in there. However, most of our clients, we suggest that indexing is probably a better move for you.

anyway, unless you are actively into trading and you understand, you know, the macro, the micro, you understand, you know, moving averages and all of these different things, you probably just want to be in indexing anyway. So looking for corporate class ETFs can be a way to minimize the passive investment income that your corporation is receiving.

This is also helpful for those people who may have had an incorporated business for many years. And maybe you were paying this passive income tax. You may have known, maybe you didn’t know it was happening in the background, but maybe you’re getting to a point where the grind down rule is now grinding away your small business tax credit, which means you’re going to be paying more on your active income than on the first 500,000, right? So.

know, passive income is not a good thing to be generating too much of inside your corporation, especially if you’re not taking it out as a dividend each and every year to service your lifestyle at a personal level. Okay, we’re not here to talk about those details specifically, but we can avoid this happening by exploring corporate class ETFs. All right, so this is really, really helpful.

Let’s chat a little bit here. We talked about the idea that it is more like a mutual fund structure. So a lot of times people go, well, wait a second, what does that mean then for the MER? So the management expense ratio, are we gonna be dealing with two, two and a half, 3 % management expense ratios, which would be problematic, but even if I would argue it would still be worth the benefit, but you actually don’t have to go down that path. There are some different.

tickers out there that provide you this corporate class status without a huge MER fee. Now I’m gonna share a couple tickers here. Full disclosure, I do not own any of these tickers. My corporations do not own any of these tickers, so I am not here and we’re not being paid to share these tickers. So I’m just telling you that these are just some examples that are worth exploring depending on what types of investments you’re looking to make inside your unregistered account.

if you’re a high income earner, even if you’re a low income earner, you know, it’s still not a bad idea if you’re gonna be reinvesting those shares or reinvesting those dividends into more shares that are dividend producing, doing it inside a corporate class ETF could be a good fit if you find something that you like. So here’s HXS. HXS is a S &P 500 ETF. The MER is only 0.1%.

and the five year return of the ETF is about 16 % as of today when we’re exploring this. Now there’s other assets as well and other class corporate class ETFs you can explore. HXT is an S &P 500 slash Toronto Stock Exchange top 60 ETF. The MER there is less than a 10th of a percent. So it’s 0.07%.

and the five-year return is a little lower than the last one we discussed at 14.8%. Why is that? Well, you’ve got exposure to the Canadian market and guess what? The Canadian market isn’t as strong or hasn’t been as strong as the US market for pretty much forever. you know, being cautious about what you’re investing in can be a really important strategy, but you still have the opportunity here to diversify. Now there are bond of…

versions as well. So HBB, for example, is a Canadian bond ETF. The MER is 0.09%. So again, super low, like almost like not even, you know, on the radar, like it’s not even a concern at all. The five year return on that HBB Canadian bond ETF is about 3.8 to 5.5%. As you’ll know though, there is volatility.

for all of these because it’s still the market. So you’re not gonna lose volatility. So you’re gonna get the same or very similar type volatility in the equities that you select in a corporate class ETF or just a regular ETF, as well as same thing with bonds, right? So while bonds are deemed to be very safe, let’s be honest, when interest rates are on the move, the price of bonds go up and down. They adjust and therefore it can still be a very volatile asset.

class, especially if we’re seeing that growth in the economy is decelerating at the same time as inflation decelerating while a lot of people like to see inflation decelerating me included. The problem is is if the economy is also decelerating we get the worst of everything because it means that bonds are going to go down and the stock market and sorry equities are going to go down as well. Likely it’s not a good situation to be in if you’re in a traditional 6040 portfolio.

So for us, if you’re looking at corporate class ETFs, you should definitely be taking your equity focused portion of those portfolios, whether it’s 60%, 70%, 90%, right? High income T4 employees are probably gonna be more high equity than say business owners. Why? Business owners don’t want to have too much tied up in the market given any type of volatility in their own business. So they’re gonna be more around the 60-40 or 50-50.

Remember, instead of going corporate class bond ETFs, you have a much less volatile ride and more liquid ride using a high early cash value permanent insurance policy. And that’s what we specialize in helping business owners and high income earners arrange and set up for themselves. So we’re not here to chat about that, but I’m gonna say if you’re looking at corporate class ETFs, you wanna be doing so for the equity portion of your portfolio.

If you’re looking for bond specific type assets, I would argue that the high early cash value permanent insurance policy is gonna be the better way to go. You’ll get similar returns, way more flexibility and of course the massive legacy benefits with the growing death benefit over the long term. So lots of wins there as well. So corporate class ETFs, amazing but not amazing for everyone.

If you are using the Smith maneuver or you are planning to, we have so many people that reach out to us and they, they appreciate all of the content we use for leveraged investments because we specialize in helping people with leveraged investments, conservative leverage, by the way, the Smith maneuver is one way that you can benefit from being able to write off interest on your primary home that you own personally. However,

because the CRA requires that your investment has the ability or potential to produce taxable income, we would argue that staying away from corporate class ETFs would be a solid move for those doing or implementing the Smith maneuver. If your corporate class ETF is designed such that it cannot produce any interest or dividends and can never produce any interest or dividends and only capital gains, it’s possible.

that the CRA could see that as a means to not allow you to your loan interest. Now you’ll notice I’m using very general language here. One is because I’m not your CPA and I’m not your lawyer. That’s one reason and I’m not here to give you advice but more to educate. But two is that there have been some cases that have been tried between the CRA and other Canadians.

where they’ve tried to challenge the deductibility of interest on investments that didn’t have the potential to produce income. All right, so while I can’t tell you that it would or would not work for you, the reality is is that you probably shouldn’t be trying to eliminate the potential to receive interest or dividends and rather go with a traditional ETF that is going to give you a dividend or is going to give you some sort of potential.

Now that doesn’t disqualify, picking Nvidia because one day Nvidia may choose to give a dividend. And if that’s your belief, you could probably have that as an argument against the CRA if they ever said, hey, Nvidia typically hasn’t paid a dividend up to this point. The reality is that they are able to pay a dividend into the future, especially if you believe they will become a blue chip stock at some point. So again, still kind of a gray area there. It’s not going to be perfect.

Definitely don’t go after corporate class ETFs if you are using leverage and you want to write off that leverage or the interest on that leverage in order to purchase the investments. So my friends, as a quick summary and quick takeaway, corporate class ETFs are here to help you, especially if you are in a high personal income tax bracket or if you’re an incorporated business owner and you have retained earnings that you’re looking to invest in.

equities. Do not take those dollars in unregistered accounts and put them into things that are going to create a more significant tax problem with yourself when there are corporate class ETFs that can help you to avoid paying and essentially claiming more income from year to year. So that’s who it’s for. If you’re boring to invest steer clear and

go for typical ETFs or typical dividend type investments that you have been doing to date and that’s gonna continue working for you. So if you’re sitting on retained earnings or a large non-registered portfolio and want to invest smarter, not just harder, corporate class ETFs might be your best kept tax secret. Want help building a tax efficient plan using these tools?

Head on over to CanadianWealthSecrets.com forward slash discovery and book your no cost strategy session. And don’t forget, share this episode with a fellow entrepreneur or investor who needs to hear it. We appreciate you my friends and we look forward to seeing you in our next episode. Just as a reminder, this information is for investment.

Just as a reminder, this is not investment advice and this conference content is for informational purposes only. You should not construe any such information or other material as legal tax, accounting, investment, financial, or other advice. And as a reminder, we focus on helping you to structure corporate leveraged insurance strategies so that you can lever and maximize the use of those retained earnings. So

If that’s you, reach out to us because I, Kyle Pearce, am a licensed life and accident and sickness insurance agent, and I am the president of Canadian Wealth Secrets, Incorporated.

Canadian Wealth Secrets is an informative podcast that digs into the intricacies of building a robust portfolio, maximizing dividend returns, the nuances of real estate investment, and the complexities of business finance, while offering expert advice on wealth management, navigating capital gains tax, and understanding the role of financial institutions in personal finance.

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