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Description:
What if your biggest tax problem isn’t actually a tax problem—but a wealth blueprint problem?
For incorporated business owners, building wealth means managing two interconnected worlds: your personal finances and your corporate assets. Decisions around salary, dividends, investments, retirement accounts, insurance, and estate planning can all affect your cash flow, net worth, taxes, and the legacy you ultimately leave behind.
In this episode, we walk through two very different business-owner scenarios to show why focusing on taxes alone can lead you toward the wrong solution—and why understanding your complete financial blueprint needs to come first.
You’ll discover:
- How to distinguish between a genuine tax problem and a broader cash flow, savings, or wealth-structure problem.
- Why passive investment income inside a corporation can create significant tax drag—and how asset allocation and investment structure can change the equation.
- How to think about corporate and personal assets together when balancing today’s cash flow, long-term net worth, and the wealth you want to leave behind.
Press play to learn how a wealth blueprint can help you make more intentional decisions about your corporate assets, taxes, cash flow, and legacy.
Next Steps:
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.
Canadian Wealth Secrets Show Notes Page:
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 corporate passive income taxes at greater than 50%; or,
- …wondering whether your current corporate wealth management strategy is optimal for your specific situation.
For incorporated business owners, effective wealth architecture goes far beyond finding short-term business owner tax savings—it means building a coordinated Canadian wealth plan that connects personal vs corporate tax planning, tax efficiency, corporate wealth planning, and legacy planning Canada. This episode explores how Canadian entrepreneur finance decisions such as salary vs dividends Canada, RRSP optimization, optimizing RRSP room, passive income planning, tax-efficient investing, and corporation investment strategies can affect cash flow, net worth, and long-term wealth. Through real business-owner examples, you’ll see why corporate structure optimization, capital gains strategy, Canadian tax strategies, financial diversification Canada, and estate planning Canada should be considered as parts of a larger financial system rather than isolated tactics. Whether your priorities include financial freedom Canada, financial independence Canada, retirement planning tools, financial buckets, an investment bucket strategy, or building long-term wealth Canada, the goal is to create financial strategies that align corporate and personal assets with your lifestyle and legacy objectives. It’s a practical look at Canadian wealth management and the financial systems for entrepreneurs that can help business owners make more intentional decisions about their wealth today and in the future.
Detailed Episode Summary
Luck, Volume, and Planning for Success
Jon and Kyle discussed the role of luck in business success and how to increase opportunities for success through volume. They believed that luck is not negated by volume but instead increases with each opportunity, much like rolling a dice repeatedly. They also stressed the importance of preparation, hard work, and planning in defining luck and achieving success. They encouraged individuals to take control of their wealth building journey by creating their own volume and investing time in clear planning. Lastly, Kyle mentioned the release of the fourth weekly episode of ‘Secret Sauce’ and asked for feedback on the initiative.
Transcript:
And that massive tax bill is costing about $170,000 to $175,000 each and every year just by allowing this portfolio to run and operate the way it is being done so now. Most people think that they have a tax problem when they actually have a wealth blueprint problem. Today I want to show you.
The exact framework that I use when I sit down with an incorporated business owner for the first time. Because before we talk about investments, taxes, insurance, private equity, real estate, or estate planning, we need to understand the blueprint. Now, how do I pay less tax? The question most business owners get wrong. Most people start here and it’s understandable. Taxes are painful, especially when you’ve worked hard to build a successful business.
But taxes are usually the symptom, not the disease. The real question is, how do I create more cash flow, more net worth, and more legacy? Because nobody actually wants lower taxes. They want what lower taxes can create. More money invested, more financial freedom, more options, more wealth, more impact on future generations. Tax planning is simply one tool that helps us get there.
The problem is that many advisors focus on the tool before understanding the objective, and that’s backwards. Cash flow, net worth, legacy. I believe almost every incorporated business owner and high net worth individual in Canada is trying to optimize some combination of these things: cash flow, net worth, and legacy. Let’s define them. Cash flow is your lifestyle. How much can you spend? How much freedom do you have today?
Net worth is accumulation. How much wealth are you building? How fast is your capital growing? Legacy is what remains. What happens to everything you’ve built when you’re no longer here? The challenge is that every financial decision impacts all three. If you maximize spending today, you often reduce future net worth. If you maximize growth, you may sacrifice current lifestyle. If you ignore estate planning,
Your legacy may be dramatically reduced by taxation. So the goal isn’t maximizing one corner, it’s balancing all three. That balance looks different for every family, which is why generic financial advice rarely works for incorporated business owners like it does for the average Canadian. Now, here’s what we actually do when someone comes to me for a discovery call.
I don’t start by recommending products, investments, insurance. I start by mapping out the system. Because every incorporated business owner is managing two worlds simultaneously, the personal side and the corporate side. Most financial advice focuses on one side or the other. Very few advisors help clients optimize the relationship between the two, and that’s where most of the opportunity lives.
Salary decisions, dividend decisions, corporate investments, RRSP contributions, tax-free savings account contributions, holding companies, corporate owned life insurance, debt strategies, real estate planning, estate planning, everything interacts. That’s why there is no one size fits all answer. The right answer depends on the blueprint. Now, let me show you two examples. One person who thought he had a tax problem, and
Another person who actually did. All right, so we’re going to look at this first case study. We’ve got an incorporated business owner who’s 60 years old, who’s married, and who currently has some retained earnings inside their structure. It’s about $600,000 of retained earnings. Now they’re receiving a salary from an outside employer at this time. It’s about 160.
thousand dollars and as of now it sounds like this person plans on working until they eventually pass they have no plans on retiring so they’re hoping to continue bringing in this income when they came to me they said they had a tax problem because they wanted to get this six hundred thousand dollars out of their corporate structure but in reality that’s not the real problem that this person faces
Eventually, they want to be able to get some of these dollars out. Maybe if they do decide to retire, or maybe if by chance they actually lose a job and they are actually forced into retirement, not being able to replace that income. At that time, we don’t actually need all of this money in our personal hands all at once. So that’s actually not a tax problem. In their particular case, there’s some other things going on here. First of all, they’ve got about $60,000.
In combined tax-free savings account. That’s nice, but there’s a whole lot more room there available. So it’d be nice if they took some of the salary every year and started putting that into their tax-free savings account. In their RSP, they have almost nothing in it, just about under $10,000. So we’re gonna just leave that as a big zero. And there’s no other non-registered accounts going on, no other assets other than their primary home, which they do own.
And is worth about $800,000 with about $200,000 owing on this property. When they came to me, they came thinking they had the problem that they needed to get this $600,000 out to a personal level. So I asked them, what did they need the money for? Why do they want to get this money out? And really what they were saying is they just want to know how could they eventually get this money out in the most tax-efficient way when.
They want to or need to. Now, there are strategies, structures, things that we can try to use, leverage strategies. But in this particular case, they’re really in a situation where instead of taking this money all out, they’ve done what they should do, which is deferred a good chunk of it. Now, over time, they could have maybe upped their salary a little bit and paid themselves in order to start contributing to the but we learned later that this.
Money is actually sitting in a corporate investment account that’s actually quite balanced. And by balance, they’re actually earning only five to six percent. And it turns out that the risk tolerance is low. And because of that, there’s some inefficiency going on inside of this corporate structure. So we’ll talk about what they might consider doing over time.
But ultimately, at the end of the day, we’ve got a bit of a challenge here because they’re saying they have a tax problem. And sure, they do, they are being paid from an outside employer. So this isn’t from their company. This is money that’s coming to them from an outside employer and paying them $160,000. And they are paying a significant enough amount of tax. However, they are utilizing all of that after tax.
Dollars or all that after-tax cash flow instead of utilizing the RSP in order to get some of that tax back. So, really, what we have here is we have a bit of a lifestyle challenge that we’re earning about this much, but we actually don’t have much left over to invest or consider deferring some of those taxes in the RRSP. So this is less of a tax problem and more of a volume problem for this individual.
Let’s assume they decide to retire now at age 60 and they want to rely essentially all on this retained earnings of $600,000. If we start to slowly take that $600,000 out each year, and if we think about this at, you know, using the 4% rule, we could take out approximately, in this particular case, $24,000 a year, and they can pay themselves out as a dividend.
Now, this wouldn’t be a very tax efficient thing to do if we’re still earning our 160, but assuming they eventually retire and they do need income, they can take out about $24,000 and in a balanced portfolio, we can expect that they can increase this by the rate of inflation each year for about a 30-year runway.
So the real question is: if we have 600,000 and if the plan is to defer the tax on this retained earnings until they need it in quote unquote retirement, whether they’re forced into retirement or whether they choose to eventually retire, we have more of a volume issue than an actual tax problem. Because if we’re only pulling $24,000 out, we’re going to be in a very low tax bracket.
But then also, we’re not going to have enough income to support our lifestyle comparative to what we were doing while we were working. So this particular business owner actually doesn’t have a tax problem yet. However, if plans go as they hope, which is they continue to work, they live well into their 70s, 80s, maybe beyond, and they continue to work for that time, we can actually grow these.
Dollars inside our balanced portfolio, but we’re eventually going to have a tax event down the road if we’re not utilizing these dollars for retirement. So ultimately, at some point down the road, we might actually want to consider splitting this up into two different buckets here. One consideration they might make, given that they do have a low risk tolerance, we might want to take a portion of this 600,000.
Have them in a all equities ETF of some type, one that is hopefully going to be a corporate class ETF of some type. And the rest, instead of leaving in fixed income that’s producing taxable passive income inside the corporation, we might choose to consider opening a high early cash value life insurance policy that can help us grow.
That portion of the portfolio at about GIC like returns for cash value tax-free and eventually paying out a tax-free death benefit, which could then flow out to spouses, children, or the estate over time. So instead of this person having an immediate tax issue now, what they really have is a bit of a spending and savings issue.
Volume is key for this particular individual and it’s definitely a problem worth solving, along with restructuring what we do with this $600,000 in the interim, because right now having it in a balanced portfolio may be too conservative or more conservative than they need to be, especially given the fact that they do plan to work for the foreseeable future.
One other aspect that’s worth considering here as well is that what if they do have a earlier than anticipated death? Well, there’s not a whole lot left over for the household to continue if they are the working spouse and the other spouse is not working. So having a death benefit that will pay out through a permanent insurance policy and pay out in a tax-free fashion can be an incredibly helpful thing as we plan out this particular
Business owner’s wealth management plan. All right, now we’re gonna look at another business owner. And this particular business owner has a tax problem. Currently, inside their holding company, they have about 10 million dollars of retained earnings and capital gains. Okay, today we’re not going to talk about the nuances between the retained earnings and the capital gains.
But they have a portfolio of about 10 million dollars inside the holding company. Now, the operating company is still owned by the actual shareholder, and they are no longer actively operating inside the operating company. So they have the right people and tools in place to continue the company going, but they do have 100% ownership of both the holding company and operating company.
inside and connected to their family trust. In this particular case, we have about $800,000 a year of retained earnings that flow up as an intercompany dividend into the holding company. So that is creating more and more of the retained earnings in the holding company that’s being invested and split in about a 6040 allocation
It’s really all in a public portfolio. Now, the 60% is allocated in equities and 40% is allocated in fixed income. Now they are taking dividends for their lifestyle. They take about $250,000 of dividends. And we can address some of that through some other strategies. But today I really just want to
Hone in on what’s going on over here. They have a lot of other good things going on in their world as well. So they have a very well-funded RRSP. They also have an IPP inside the corporate structure. That IPP is about 1.8 million over here. We’ve got RSPs of about, I want to say it’s somewhere around 200,000 because the remainder was rolled into the IPP.
Tax-free savings account combines somewhere around 300,000 going on over there. And they also have some other non-registered investments of about $2 million outside. So we have quite a bit going on here. Primary home is worth somewhere around $3 million, and there’s zero mortgage on it. And they’ve also got a cottage and some other real estate that we’re not going to hone in on and focus on too much.
In today’s discussion, what we are going to look at is what’s going on on this side, and we’re going to look at the lowest hanging fruit that we have available to us inside of their corporate structure here. Now, one of the challenges that I see, something that pops into my mind right now, is what are we invested in? And currently they have this mix because a 60-40 portfolio is quite common and it
Matches the risk tolerance. So even though this individual is older, they are around 65. They’ve been in the business for quite some time, not actively in the business, but they still own the operating company and the holding company. And as we look here, basically in their equities, if we take a very conservative assumption that these equities are indexed in something like XEQT.
The problem is that even though the dividend that’s being paid from XEQT is only at about 1.5%, the problem is that it is producing a significant amount of passive income inside the corporation. That passive income that it’s producing is around $90,000 per year, 1.5% of $6 million.
We get about $90,000 of passive income from this side of the portfolio. Now, that might not seem too bad. That might not seem problematic. Who wants to turn down money? Of course, we don’t. But we also have the fixed income side. And let’s assume that the fixed income is returning us somewhere around 3%, which I think is fairly conservative. But if we are in different types of bonds and GICs and other types of income,
Generating assets that are a little less volatile, we can anticipate that there would be about another hundred and twenty thousand dollars of passive income over here. Now, our problem is that when we do this and we take these two numbers and we combine them, we have over $210,000 of passive income. And unfortunately, the first
$500,000 of net operating income inside this operating company, that first $500,000, the actual small business rate has been completely grind away. And we actually have none of that available room in order to pay at a lower tax rate. So while we’re going to pay around 50% in tax on the $210,000.
So we’re talking about essentially $105,000 in passive income tax. We’re also losing another $70,000 or so in tax savings because this operating company has no available room at the small business rate. And that massive tax bill is costing about $170,000 to $175,000 each and every year.
Just by allowing this portfolio to run and operate the way it is being done so now. How we’d go about trying to address this very low-hanging fruit is by just doing some reallocating. The goal here being that we reduce the unnecessary tax drag on both sides of the portfolio, and we can do this over time.
By being strategic. We certainly don’t want to rip the band-aid off by simply just selling everything and realizing large capital gains, but we can slowly start transitioning some of these equities over into corporate class style ETFs. Some examples, not a recommendation, not advice, might be HXT, HXS, HXQ. We’ve got the SP 500, we’ve also got a Canadian.
Equities ETF as well. These are all corporate class, so they do not produce a dividend and therefore do not create passive income inside the corporate structure. So this is one easy way that we can reallocate, have the same essential exposure to the market by selecting a corporate class style ETF or a non-dividend paying or non-distributing ETF.
That can get you the same exposure to the market that you had had in the first place. On the fixed income side, we’re likely going to want to rip the band aid off as fast as possible and put more money into what we call a high early cash value insurance contract. This is going to be owned by the holding company. And inside of that policy, we are able to achieve similar returns.
And likely better returns than what we were receiving from the fixed income portfolio that these dollars were sitting in. So instead of us realizing, say, three or maybe even four percent in fixed income, that’s creating unnecessary tax drag, both on the passive income tax side of things, but and on the grind down of the small business active tax rate, we’re able to take this, put it into a tool that will
Essentially grow as we age and would allow us to have cash value, which can be leveraged in the corporation, or provide us opportunities to use leverage at a personal level by using other assets in our world or even some of these corporate assets, in order for us to be able to realize some more additional cash flow without additional tax drag. Now, on the other hand,
The death benefit that we create inside a policy like this is always larger than the cash value before the hundredth birthday of the insured individual. So why this is important is because while we’re living, we get to utilize those dollars in different ways, just like we would have been able to with a fixed income-like asset. We get to realize similar returns, but tax-free inside the policy.
And when we do pass on to the next world, the death benefit, a larger value, will be sent to that corporation completely tax free. And the net death benefit can be released as a capital dividend through the capital dividend account to shareholders, which could be spouse, children, it could be to the actual family trust if you choose, or
It could flow even right over into charitable giving donations. So there is a lot of things that can be done here. And in this particular individual’s case, we looked at one easy move that we can make in order to adjust what they have going on in terms of their asset allocation, their risk tolerance and profile without really having to do a whole lot else other than simply.
Putting the right assets in place while achieving better returns because of the tax efficiency that we’re able to achieve with a similar risk profile. So, in this particular business owner’s case, this wasn’t an investment problem. It was a wealth architecture problem. So, this is why financial advice for incorporated business owners is different. Most financial advice in Canada is built for employees.
T4 earners, middle income households, people whose wealth exists almost entirely on the personal side. But incorporated business owners live in two worlds, personal and corporate. And every major financial decision affects both. That’s why one person needs more RRSP, another needs more corporate investment optimization, another needs a holding company, another needs some more estate planning.
And another needs corporate owned life insurance. Some people might even need all of the above. The answer is never the product. The answer is understanding the blueprint first. So here at Canadian Wealth Secrets, our goal isn’t to help you buy a product. It’s not to help you buy insurance. It’s not to help you buy investments. It’s not even to help you save tax. These are all tools.
Our real goal is helping incorporated business owners just like you answer one question: How do I structure my personal and my corporate assets to create more cash flow, more net worth, and leave a larger legacy? Because when you get the blueprint right, the investments become obvious, the tax planning becomes obvious, the insurance decisions become obvious, the estate planning becomes obvious.
The framework comes first, all of these tools come second. And that’s exactly why two successful business owners with similar concerns can end up with completely different recommendations. So if you’re an incorporated business owner, here’s the question I’d leave you with. Do you actually have a tax problem, or do you have a wealth blueprint problem? Because those are two
Very different conversations, and the answer could completely change the decisions you make over the next decade. If this resonated with you, I’d encourage you to subscribe to our channel, follow our podcast, and join us inside the Canadian Wealth Secrets community, where we continue helping incorporated business owners just like you to build more cash flow, more net worth, and more legacy through smarter wealth architecture.
If you’re interested in reaching out for a discovery call to see if we have any ideas around how we can help you craft your blueprint, you can go ahead and click the link in the description. And if you’re curious about taking one of our free incorporated business owners masterclasses, you can also hit that description in the link below as well.
And just as a reminder, this content was created for informational purposes only. You should not construe any such information or other material as legal, tax, investment, financial, accounting, or other advice. Kyle Pierce is a licensed life in accident and sickness insurance advisor, is a graduate of the Canadian Securities course, and is the president of corporate wealth management at Canadian Wealth Secrets.
Canadian Wealth Secrets is an education-first company whose team members and strategic partners are strategically licensed to assist with asset management, insurance, and private equity opportunities.
