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Description:
What if the biggest risk to your corporate cash is leaving it exactly where it is?
If you have hundreds of thousands, or even millions, sitting in your corporation, you’ve likely heard “you should probably invest it” from your accountant more than once. Yet the decision keeps getting pushed to next year. Meanwhile, inflation quietly erodes your buying power, and the balance you count as yours may be closer to half of that once it reaches your family’s hands. In this episode, Jon Orr and Kyle Pearce explain why smart, successful Canadian business owners stay stuck for years, and what that hesitation is costing them right now.
The real problem usually isn’t picking the right fund. Your accountant, your investment advisor, and your insurance professional each look at one slice of the picture, which leaves you to connect the dots. Investing inside the corporation can also push passive income past the $50,000 threshold and start eroding your small business deduction, so the “obvious” move can raise the tax bill on the business you actually run. Jon and Kyle show why starting with the overall plan, and choosing products last, can finally move you from analysis paralysis to a confident decision.
You’ll discover:
- Why leaving excess cash in your corporation can quietly cost you, through inflation, hidden tax on the way out, and the risk of triggering a higher tax rate on your active business income.
- How to decide how much cash should stay liquid, how much should be put to work, and where it should go, by looking at your corporation, personal balance sheet, tax, and estate together.
- Real-world examples of how a Toronto tech consultant, a couple living abroad, and an ER physician went from “trapped” or frozen corporate cash to a clear, tax-aware plan.
Press play now to find out how to turn idle corporate cash into a clear plan, so another year-end doesn’t pass with the decision still unmade.
Next Steps:
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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 Canadian entrepreneurs, corporate cash management is the foundation of a Canadian wealth plan and the first step toward financial freedom in Canada. Too many business owners let retained earnings sit idle because their accountant, investment advisor, and insurance professional each see only one piece of the picture. A strong financial planning process starts with the big picture: personal vs corporate tax planning, salary vs dividends in Canada, RRSP optimization, and a tax strategy that keeps passive income from eroding your small business deduction. From there, a financial bucket system lets you decide how much cash stays liquid, how much goes into tax-efficient investing, and how much supports real estate investing in Canada or other financial diversification, whether you’re weighing real estate vs renting or building passive income. Pairing corporation investment strategies with a capital gains strategy, corporate structure optimization, and estate and legacy planning for Canadian families turns scattered decisions into one coherent system. Whether your goal is financial independence, an early retirement strategy, or modest lifestyle wealth, setting a clear financial vision and using the right retirement planning tools helps you build long-term wealth in Canada with confidence, so you keep more of what your business earns.
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:
Jon Orr: You’ve got money sitting in a corporation, hundreds of thousands, maybe a million, or maybe two million is sitting there. It was there last year. There’s more there coming this year. Your accountant told you at the end of the year that you should probably invest it. And yet you probably still haven’t done anything to decide about that.
In this episode, you’ll discover the sneaky belief that keeps smart, successful business owners like you stuck in exactly this spot for three, four, five years. And exactly what leaving that cash where it is is costing you right now. And finally, how to get a straight answer on how much should stay liquid, how much should be put to work and where it should go.
Kyle, there’s a line we keep hearing from business owners we speak to across the board. Whatever their industry happens to be, it always sounds something like this. I’ve got a bunch of cash in the corporation, and I don’t know if I’m doing this right. And where and what do I do with that high amount of cash?
Kyle Pearce: And if you’re listening to this right now and it sounds even somewhat familiar, here’s what’s interesting. You’ve likely tried to do something about this in the past. You’ve asked your accountant and your accountant’s great at filing, but maybe they’re not available or or they’re not even willing to be able to tell you what to do. Because remember, that’s not really their job. They’re there to file, not necessarily give you tax or investment advice.
You’ve asked your investment person and the conversation went straight to which fund? Maybe you put a chunk into XEQT or VEQT, Brandon from BC. You know I’m talking to you about that. Or maybe a corporate class ETF like HXS inside the corporation. And they’ve been great, but yet you still have a feeling that it’s not the only issue or the real issue anymore.
Jon Orr: Right, right. Or you parked it somewhere safe, a GIC or a savings account and you told yourself you come back to it. Or somebody showed you a strategy that sounded good there. And then before you got home, you thought about it and something still felt off.
Kyle Pearce: Yeah, and you’ve read the books, you’ve listened to this podcast, probably a lot of it, and you still don’t know what to actually do next. And here’s why. Every professional in your life handles their little piece, and nobody really looks at the whole thing. So without ever agreeing to it, you become the one connecting the dots. But while you’re the one connecting the dots, you don’t feel qualified at all to connect those dots. So for example, we sat down with a Toronto tech consultant who had about $950,000 trapped in GICs. Again, trapped. We use that word kind of loosely here because again, good problem to have, but
it was money that literally couldn’t be pulled out without losing another 30 to 39% in additional tax. We helped them understand how we can restructure it so that he could fund his family’s $150,000 per year lifestyle without triggering any additional tax and access up to 90% of his capital whenever an opportunity showed up. And then there’s a very specific kind of guilt that comes with it. You know idle money is costing you something. You don’t know what the alternative is. So it sits there yet another year, and the guilt gets a little bigger, and so does the balance.
Jon Orr: And then there’s the cognitive dissonance that comes with the fact that on paper you’re doing great and it feels good. The business has money, but you still hesitate before buying something that you know is ridiculous given the numbers. Your spouse asks, why things still feel tight? And you don’t have a good answer, but you wish you did.
For example, we met a couple living abroad with over a million dollars sitting in savings accounts earning one percent, but they were terrified to invest it because they’d watch people get wiped out by bad timing. Or we also helped an ER physician who reached out exhausted, has two professional corporations, a holding company generating nothing, and over one million essentially frozen because his advisor refused to do anything but sell him high fee mutual funds.
Kyle Pearce: So the way I like to put it is that the corporation is rich and the owner gets the breadcrumbs. Okay. You’ve probably felt it. You’ve you’ve been there before. You’ve been building for five, 10, maybe even 20 plus years, but never actually stop to look at where it’s all going. And when you try to think about it, you eventually just settle with, I’m probably fine. I just don’t know that I’m fine.
Jon Orr: Mm-hmm. Kyle, let’s let’s put some numbers on it because we are still math teachers in recovery and sometimes we we can’t help ourselves.
Kyle Pearce: Yeah, well, the most obvious cost that most business owners still miss is that when you look at the balance in the corporation, you count it as yours. But every one of those dollars has to reach human hands at some point. And by the time it does, with no structure or maybe planning in place, you may be looking at something closer to 50 or only 60% of those dollars. So the million that you think you have might be five or six hundred thousand in your family’s hands, meaning you’ve been making decisions about your life and your family based on a number that’s roughly double the real one.
Which is why if you’ve recently incurred an expense like tuition fees, maybe the kids are going off to school now, or maybe you’ve got higher interest rates, rates had been rising over the past few years, or maybe you’ve even upgraded the home and now you have a larger balance. You’re likely feeling way tighter than you think you should be and you know you could be.
Jon Orr: And that cash sitting there is losing ground to inflation every year. So for example, on two million dollars, if it just sits there at two point five percent inflation, that’s roughly sixty-two thousand five hundred dollars, which is maybe a nice mid sized car that’s just gone every single year and you didn’t even know that it was like nothing flagged you to say, Hey, this is going out the door every single day. Or not every single day, but every single year.
Kyle Pearce: right. And this is definitely one of the biggest challenges here is that as this pile grows, things like inflation and money sitting costs us more and more. And perhaps the biggest number of them all, when you finally decide to invest it inside the corporation, for example, is an obvious start. The investments do well. And once the passive income that those investments generate cross fifty thousand dollars a year, it starts grinding down on your small business deduction, which means your active business income starts getting taxed at a higher rate.
So the obvious move done without a plan can raise the tax bill on the business you actually run. That’s why so many people tell us I’m scared to touch it because I don’t want to actually create a bigger tax bill. But we all know that not touching it is actually the biggest risk that we can be taking as incorporated business owners.
Jon Orr: You might have been meaning to sort this out for a number of years now. But if we do the math on three more year ends, three more rounds of, and I’m using air quotes again, you should probably invest it from your accountant. The pile is bigger, the problem is bigger, and the decision is exactly as unmade as it was and it is today. Meanwhile, you already suspect some things. People who you admire are paying less tax. But let’s let’s be honest here for a sec. The more money you have, the bigger tax you are going to pay. And that’s some that’s a good problem to solve, but still a problem worth solving.
So if you’ve asked the accountant, spoken to an advisor, read some books, listened to the podcasts, and maybe even invested some of the money already, why are you still sitting there thinking, I’ve got all this cash in the corporation and I still don’t know what I’m supposed to do with it?
Kyle Pearce: Yeah, I think it’s because there’s one assumption underneath almost everything that you’ve tried, right? You think this is a question about what to do with the money. Where should I put it? Where should I invest it? Should I leave it liquid? Should I buy this fund or invest in that? Should I use this strategy? And naturally, that’s the question that you’ve been taking to people.
Jon Orr: That’s also why you keep getting partial answers. Your accountant looks at it through a tax lens. Your investment person looks at it through an investment lens. Someone else might look at it through an insurance lens. And meanwhile, you’re trying to work out how all of this fits together.
Kyle Pearce: Right, which is the exact problem keeping you in a spot where all your money is essentially locked up because this isn’t a one investment decision. The minute that you move that money, it affects other things. How much does the business need to keep liquid just for operations? What happens to your small business deduction when I invest in X? how much eventually reaches you personally? How you’re paying yourself currently might even impact the taxes. What happens to the estate if I leave too much in the corporation? So you can make a perfectly reasonable decision in one area and accidentally create a problem somewhere else. And this is what essentially creates the analysis paralysis that you might be in.
Like, for example, reinvesting into the business successfully only to suddenly get an even larger tax bill now that we’re earning over $500,000 in our province or territory, right? So you’re thinking to yourself, I made this money. Why am I keeping so little of it?
Jon Orr: Which is why more information hasn’t made this easier. It actually makes it harder. You’ve been trying to find the right answer to one question. When really you need someone to step back and look at the entire board, the entire picture.
Kyle Pearce: So instead of asking, what’s the best thing to do with this cash? It’s what does the overall plan say the cash needs to do? Because once you know that, the investment decision becomes much easier. The tax decisions become clearer. You know what genuinely needs to stay in the corporation and what doesn’t, because you’re no longer trying to connect all of these pieces yourself.
So, for example, that tech consultant who had $950,000 trapped in GICs inside the corporation, we helped them to understand how they could restructure it so that he could fund his family’s $150,000 a year lifestyle without triggering additional taxes unnecessarily, and to access up to 90% of that capital whenever another opportunity might show up.
Another example was the couple who was terrified to touch the one million dollars in their corporate savings account. We showed them a managed portfolio with real downside protection, the kind of structure where when the market drops twenty percent like it did in twenty twenty two, the portfolio only dropped four percent. For the first time, they had a way to grow their money without lying awake over the next crash.
Jon Orr: Which is why the order matters so much. Right now, you don’t need to start mutual funds, ETFs, insurance policies, or any sort of product at all. The plan needs to come first. And any sort of product that an advisor is recommending comes last. So what does the other side actually look like?
Kyle Pearce: One picture, corporation, personal balance sheet, tax, and estate on the same page, which is the thing that none of your current professionals has likely set up or is able to draw for you. That’s what we call the financial freedom blueprint. When people see their own numbers laid out in that way, the reaction is almost always the same. It’s a sigh of relief, not because they found a trick, but because for the first time they actually know. and can see that they are fine as is. And that if we do some optimizing, we can be even better off than we would be had we sat here in this analysis paralysis for the next one, three, or even 10 years.
Jon Orr: So if you’ve had cash piling up in your corporation for a while, year to year, you have significant retain earnings coming in, hundred K, 200K, And you’re at the point where you’re being squeezed somewhere. And the longer you leave it there, the worse off you’re leaving yourself, the business, and your family. You should be reaching out to us for a discovery call. It’s completely free. We educate and do all the planning with you. And if there’s an opportunity to help you implement, we’re here to help you. But there is no obligation to actually follow through on any of the strategies with us. Click the first link you see in the description below for this episode. Whether you’re listening on Apple or Spotify or watching on YouTube, it’ll take you straight to find a time to speaking with us.
Kyle Pearce: We look forward to mapping out your financial freedom blueprint soon.
