Episode 211: How To Legally Pay Less Tax as a Canadian Business Owner

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Are you unknowingly letting taxes drain your wealth—even after years of business success?

Many Canadian business owners build impressive portfolios, yet still lose thousands each year to unnecessary taxes. It’s not because they’re doing anything wrong—it’s because they’re missing the system the wealthy quietly use to build, protect, and transfer wealth efficiently. In this episode, Kyle Pearce and Jon Orr break down how to legally minimize taxes, grow your assets strategically, and turn your corporation into a true wealth engine instead of a tax leak.

You’ll discover:

1. Why most entrepreneurs build wealth backward—and how defining your financial vision changes everything.
2. How to use your corporation as a tax-efficient reservoir to trap wealth before it leaks to the CRA.
3. The truth about tax timing—and how to outpace most investors by simply losing less to taxes.
4. When to start withdrawing strategically (hint: not when you retire).
   How to design your legacy so your wealth ends up exactly where you want it—not where the government decides.

Press play now to learn how to take back control, protect your profits, and engineer your financial freedom.

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.

Building financial freedom in Canada starts with a clear financial vision and a smart, tax-efficient plan that keeps more of your wealth working for you. Whether you’re a Canadian entrepreneur, real estate investor, or business owner, understanding personal vs corporate tax planning, salary vs dividends, and RRSP optimization is key to creating lasting prosperity. By developing financial buckets and a wealth reservoir inside your corporate structure, you can balance tax-efficient investing, capital gains strategies, and passive income planning to fund both your lifestyle and future. A well-designed Canadian wealth plan isn’t just about growth—it’s about control, legacy planning, and having the flexibility to retire early or live a modest lifestyle on your own terms. From corporate wealth planning to estate planning Canada, the right financial systems for entrepreneurs ensure your wealth compounds efficiently, supports your real estate investing goals, and protects your legacy for generations to come.

Transcript:

Kyle Pearce: There’s a silent wealth killer in Canada and no, it’s not inflation, bad markets or overspending. It’s unmanaged taxes. We meet business owners every week who have built incredible success, seven figures in retained earnings, real estate, investment portfolios, but they’re still leaking money every single year because their system isn’t optimized for how Canada’s tax structure actually works.

Jon Orr: Hmm, hmm, and here’s the thing. The wealthy aren’t doing anything shady or even secret. They’re just using the rules better than most people understand them. So today, what we’re going to do for you here is we’re going to show you the lessons, we have five actual lessons that we teach our clients to legally reduce taxes, create flexibility, and build lasting wealth. And we’re gonna show you exactly where each of these lessons fits into our four-phase system around vision, wealth reservoirs, optimization and legacy, which are the elements that we believe make up a healthy financial system for business owners and high net worth individuals in Canada.

Kyle Pearce: Let’s not waste any time. We’re going to dig into lesson number one, which is most Canadians build wealth without a plan, also known as what we call the vision gap. So before we talk about tactics, the first problem is that most business owners start building wealth backwards. They invest, they incorporate, they buy real estate, but they never actually stop to define why or what the actual plan is behind it.

Jon Orr: True. Exactly, exactly. that’s where our first phase comes in, where we talk about vision. If you don’t know what your financial freedom actually looks like for you, like what lifestyle you want, when you want it, and what kind of legacy you’re actually trying to build. And every decision after becomes reactive rather than proactive.

Kyle Pearce: Vision gives you clarity on what enough actually looks like so that you can actually reverse engineer a strategy that gets you there efficiently instead of just collecting assets and hoping it all works out in the end. So I want you to pause for a second and think to yourself, do you fall into this category? Whether incorporated or not, you should be thinking about whether you have a clear vision for why you’re doing what you’re doing when you’re budgeting personally and corporately and what you’re actually doing to invest. What sort of lifestyle are you looking for? What sort of runway do you have in the business? Do you want to run the business for 10 years, for forever? Do you want to get out of the business as soon as possible? Ultimately, at the end of the day, having a clear vision will help you determine exactly what you need to do next to get closer to that end goal.

Jon Orr: Yeah, and even on the granular level, you mentioned this earlier too, is having that budget. Like what are the numbers that help you achieve that? What do your numbers look like now in terms of lifestyle? And what do you want those numbers to look like when you are say, phasing down and thinking about five years, 10 years, 15 years, 20 years even, and what this is? Because that is an essential component of establishing your vision so that all decisions from here on out, that becomes the filter so that you can actually make appropriate decisions in the remainder of the lessons we wanna teach you here today. So let’s get into it. Lesson number two is your corporation isn’t just a business. It’s actually a wealth engine. And you probably knew this, but we’re gonna give you some insight here because most incorporated Canadians, like us, treat their company like a pass-through structure. And we’ve actually talked about that here on this podcast before, is that income comes in, and typically dividends go out and taxes get paid and repeat that cycle. But you know, your corporation can actually be one of the most powerful tax structures in the country if actually you use it right.

Kyle Pearce: That’s right. That’s right. That means doing things like, for example, income splitting where it’s still allowed, right? Paying spouses if they’re involved in the business or having them as shareholders so they can accept and take dividends or adult children or even teenage children who are doing legitimate business work or business tasks inside of the business. Now, deferral is the second one, but I would argue is one of the biggest pieces, which means leaving your profits inside your corporation so they can grow at the lower corporate tax rate instead of pulling it out all personally. Yes, we know as your business becomes more successful and you start to earn beyond $500,000 of net operating income each year, you will be subject to a slightly higher taxation rate. Here in Ontario, 26.5 % is still a lot less tax than you might be paying personally if you were taking those dollars at a personal level. So defer those profits inside the corporation for as long as you possibly can keep those dollars whole and grow them from there. And then finally using structures like holding companies to separate your active business from your investment activities to protect your assets is huge. But it’s also very helpful if you are going to consider at some point down the road potentially selling the business.

Jon Orr: Yeah, and family trust can play an active role in that as well. what we’re really talking about here, like what your corporate structure really makes up is what we call the wealth reservoir. Sometimes you can think of a wealth reservoir as like our emergency fund. We’ve often referenced that, but your corporate structure, your wealth reservoir also lives inside your corporate structure, and it’s really an important phase of your planning system. It’s all about creating a place to store wealth efficiently, to trap it before it leaks out into the CRA because once your reservoir is full, then you get to decide where and when to release it.

Kyle Pearce: That’s a great, great point here. One piece about the wealth reservoir is that this is where we’re going to be storing those tax deferred dollars. And as you likely know, we are big, huge fans in using a structure around high early cash value insurance in order to hold those dollars. We want to keep the dollars whole. We want them to grow tax free. We want to be able to leverage those dollars freely both corporately and potentially personally depending on your situation. And finally down the road when that wealth reservoir finally pays out through a death benefit, the net death benefit gets to actually flow out to shareholders or to the estate. This is huge. So now let’s move on to lesson number three, which is about tax efficiency. A lot of people when we look at their tax efficiency and the focus on tax efficiency, it is very minimal. And the lesson number three is tax efficiency actually beats rate of return. Here’s the truth. It’s not the investments that make the biggest difference. It’s how they’re structured. If I use an example of two people that have the same portfolio, the same return, but one keeps 20 % more because they’re tax efficient, they’re going to be significantly further ahead. And here’s another example. The S &P 500 returns say 10 % per year on average, even though most Canadians don’t actually experience that rate of return due to pulling money in and out and not staying in the market. The reality is, is that if you actually paid 50 % in taxes, you’re now having to double. You need 100 % return just to get to break even. Whereas someone who keeps more of their dollars, say 88 cents of every dollar inside the corporation, They need a much smaller rate of return in order to get back to that break even point pre tax.

Jon Orr: Yeah, yeah, and I think that’s where we see so much opportunity in this optimizing stage or this optimizing phase is structures like this and strategies like this. Like I would say, you want to use, on the personal side, you want to use your TFSA as a true growth engine and not a savings account. Like use it to invest and use it on that personal side. We often say that wherever you make your money, invest your money. So if you’re paying yourself in payroll, or you’re sending money outside the corporate structure because it’s, you your waterfall technique has risen for it to make sense to send it out into the personal side, then make sure that you’re using the TFSA to grow that on your personal side. I think we all, I think, tend to think about it like this. It’s not a savings account. As a high net worth individual or business owner and you think about your RSPs, the typical strategy is that you would defer defer, like the RSP, like you’re putting money into your RSPs for later, like it’s deferred tax growth is happening in there. But the likelihood of that strategy working for you as a high net worth individual in Canada is that the idea of the deferment is that when you reach retirement or when you reach later in your years, when you start, you have to pull that out, then the idea was that your income would be less at that time. But that’s not likely the scenario you’re actually aiming for. You’re a high net worth individual, you lump in some of the old age security, CPP, all of a sudden now you’re earning more than what you were earning maybe before. And so what we would recommend strategically is start melting down those RSPs as early as you can. Because that can actually help you save tax in the long run. I would say you would… You also want to prioritize your capital gains and dividends over interest income in your non-registered accounts. And finally, I would say align your corporate investments, those registered accounts, and also your personal assets so they’re all working together and not fighting each other.

Kyle Pearce: Yeah, you made some great points there, John. When we think about things like melting down the R.S.P. or contributing to the tax free savings account, there are nuances to every situation. So of course you need to run the numbers. You actually have to look at this scenario and these scenarios and really try to understand what will happen if I start pulling out a certain amount of money out of an R.S.P. at say age 60 instead of waiting until age 71 where things start to turn into a RRIF and you have to take income out. So be strategic about this. Optimization isn’t about gambling and it’s not about higher returns. It’s about actually controlling when and where your wealth gets taxed. That’s how you quietly outperform most investors and usually take on a whole lot less risk by simply losing less to the CRA.

Jon Orr: Okay, lesson number four is a lesson that kind of combines the previous lessons and the previous structures that we talked about because with the lesson number four is saying don’t wait until retirement to plan withdrawals and this is why it takes into account we have to be strong on our vision and we have to be strong on our structures. We have to be strong on what optimizations, moves we’re going to be making here because I think the general rule of thumb is that you And I think this was what happens a lot with business owners is you think the rules or the strategies for personal wealth building and wealth preservation transfer one-to-one over to your corporate wealth strategies, which is not necessarily the case. And I think we have some faulty thinking in that. So when we say don’t wait until retirement to plan withdrawals is that we have so many surprises that come up. And one of the biggest surprises is that we typically, when we defer everything, it can backfire. Like in the last example, we talked about if you wait too long to pull from your RSP or eventually your corporation, you can end up with bigger tax bills later because we just didn’t think about that. We have to have that vision planning process kind of thought about in advance so that we can make strategic moves earlier than later. And that’s the biggest part of this lesson right here.

Kyle Pearce: Hmm. Absolutely. And this is really just called tax timing. And we have to understand the tax implications that different accounts and different entities are going to experience. And as we reference in the last lesson, the RRSP is one of the buckets that must be liquidated when we leave this place known as Earth, right? When we move on to the next world, right? It must be liquidated. So whether it’s us slowly draining that out and being strategic or whether it’s through a deemed disposition at the end of the second spouse’s passing, you’re going to be paying a significant amount of tax on that RRSP bucket. Whereas our corporation is an entity that can live forever. And while there are deemed disposition dealings that we must grapple with, there are capital gains. We have the opportunity to insert different tools and different structures. If we go back to our wealth reservoir using high early cash value insurance, if we go back to our wealth reservoir and we use the same tool, a early high cash value insurance policy, what we have is an opportunity for us to not only deal with those deemed disposition capital gains that we’re going to be experiencing down the road, but we also introduce the opportunity for leverage. cash flow that isn’t actually taxed in order to mitigate some of this tax timing that we’re dealing with here. So while you can smooth those withdrawals early, we’re actually going to recommend that we’re not just doing a one-to-one pulling from all of your buckets. We actually want to make sure that you’re pulling the right amounts in your lower income years so you can pay less tax overall, protect your government benefits, and avoid spiking into unnecessarily high tax brackets later.

Jon Orr: Yeah, and if that sounds scary or overwhelming, sometimes having that trusted advisor, trusted confidant, someone to go down this pathway with together can actually smooth that process out and make it feel less overwhelming and actually more empowering. know, all of this seems counterintuitive, but it does work. You’re not trying to avoid tax forever. that’s, when you think about tax time, you’re not doing that. You’re just trying to take more control over it strategically. for yourself, your family, and your legacy, which actually leads us into lesson five.

Kyle Pearce: Lesson five is legacy starts before you’re gone. Now, the sad reality is if, let’s say, you’re struggling to maximize your tax-free savings account or you don’t have enough funds around to put into investments, whether it’s the RRSP or corporate investments, the reality is is you probably don’t have some of these previous issues. You don’t have the same tax planning problem because you probably don’t have enough money to pull out in order to push you into a higher tax bracket if done poorly. So here for those people who are thinking about legacy, this is for people that actually really need to be thinking about where I take my income from, where I take my cashflow from, and I start thinking about how much of this am I hoping to leave behind after we pass? Most successful Canadians start building their legacy while they’re alive. And oftentimes people accidentally land into legacy where they’ve done the investing, they’ve stacked the assets, they’ve done all of these things without a clear vision. And at the end, they either leave a much larger legacy accidentally because they didn’t understand where they would be. Or on the other end, they actually leave a much smaller legacy because they didn’t spend the right amount of time planning.

Jon Orr: Hmm. Mm-hmm. Exactly, exactly. And if we think about the structure, think about the structure that we referenced already in this episode around the tool of a high cash value life insurance policy and making use of that policy not only while you’re alive and using say leverage while you’re alive to access the cash value when you need it, to invest in income producing assets, but also because you were forward thinking, you also get the benefit of transferring, especially when it’s in say the corporate structure of transferring that wealth from your corporate structure to your heirs or to the estate through the capital dividend account. And there are some really strategic assets there that are moves that you can be making to actually move this and transfer wealth because that’s really what that tool can be. It’s a wealth transfer tool and not just a protection

Kyle Pearce: You’re right, John. That’s the legacy phase in our system. It’s ensuring what you’ve built actually ends up where you want it to go. Do you want it to go to the children, to the grandchildren, to charity, to some other organization? You get to decide instead of allowing probate or the government to decide where a good chunk of the assets you’ve grown end up flowing when you do leave this place. It’s not about minimizing taxes at death. It’s actually about creating control, clarity and impact now and a means to deal with whatever taxes may arise when that time does eventually come.

Jon Orr: Hmm. Well summarized. So if you take nothing else away from this, remember, the silent wealth killer isn’t just taxes. It’s actually taxes unmanaged.

Kyle Pearce: when you build your wealth inside a system, one that starts with vision, one that stores efficiently within a wealth reservoir. When you build your wealth system inside. When you build your wealth inside of a system, one that starts with vision, stores efficiently inside of a wealth reservoir, optimizes for tax and timing, and transitions through a thoughtful legacy plan, you take back control.

Jon Orr: And that’s how you move from just earning money to engineering your financial freedom.

Kyle Pearce: So if you want to see how your current setup fits into our four phase model, take our free wealth health assessment over at canadianwealthsecrets.com forward slash pathways. And if you’re ready to start a conversation with us, you can book a free strategy session over at canadianwealthsecrets.com forward slash discovery.

Jon Orr: Just a reminder, the content you heard here today is for informational purposes only. Should not construe any information as legal tax investment or financial a licensed life and accident and sickness insurance agent and the president of corporate wealth management here at Canadian Wealth Secrets.

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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