Episode 184: The Smart Way to Unlock Your Canadian HoldCo’s Cash with Private Equity

Listen here on our website:

Or jump to this episode on your favourite platform:

Watch Now!

Are your retained earnings just sitting idle in your corporation — taxed if touched and seemingly out of reach?

Many Canadian business owners struggle to unlock the full potential of their corporate cash. Between tax traps and limited investment options, it often feels like you’re stuck watching your money stagnate. This episode uncovers a smart, lesser-known strategy to keep your retained earnings working for you — without triggering personal taxes or resorting to risky bets. 

This episode shares a recording of a joint webinar between PE-GATE and the team at Canadian Wealth Secrets. 

Tune in to discover:

• How to invest your corporation’s retained earnings into private businesses while keeping the taxman at bay
• What makes private equity a powerful, tax-efficient asset class — and how regular business owners can finally access it
• Why boring, cash-flowing businesses might be the best-kept secret to growing wealth in Canada

If you’re a Canadian business owner ready to put your corporate dollars to work, hit play now and learn how to unlock strategic growth without paying more tax.

Resources:

• Reach out to PE-GATE to learn more about their opportunities (Click here)
• Learn more about the 4 Stages of a healthy wealth financial plan. Take the Canadian Wealth Secrets Assessment (Click here).
• 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.

Canadian entrepreneurs seeking financial independence and early retirement are increasingly turning to private equity as a core component of their corporate wealth planning. By strategically investing retained earnings into this high-performing asset class, business owners can unlock powerful tax-efficient investing opportunities that go beyond traditional RRSP optimization or real estate investing in Canada. With a focus on liquidity, corporate structure optimization, and tailored investment bucket strategies, this approach supports a modest lifestyle wealth philosophy while fueling long-term business growth and legacy planning in Canada. Whether you’re weighing salary vs dividends, exploring capital gains strategies, or designing financial systems for entrepreneurs, this method fits seamlessly into a modern Canadian wealth plan. By integrating financial vision setting, corporate finance tools, and estate planning Canada-specific tactics, it’s possible to build diversified, sustainable wealth while minimizing personal and corporate tax burdens—helping you step confidently toward true financial freedom in Canada.

Transcript:

Yes. Welcome all. Welcome. As you get settled here into this session, we are going to be, we’re going to be getting started in just a sec, but do us a favor. We always love to see who’s joining us on our live sessions, whether we’re doing podcast live sessions, whether we’re doing webinar live sessions, get yourself into the chat, get your typing fingers ready. Let us know, you know, whereabouts you’re coming from. coming from.

You’re from somewhere else in Ontario. You’re coming from, you know, West West coast. You’re coming from the East coast. Let us know. you know, we could have lots of folks from all over Canada joining us here today. So let us know that also let us know. You know what, what, what, you know, what’s your, you got to, you know, your job title. Like you have a business, let us know a little bit about like, you know, a little bit about yourselves. Feel free to get in the chat, feel free to turn on your cameras as well.

We’d love to see those faces join us. We’re going to make this an intimate session. We’re going to make sure that this is impactful for you. we’re going to be, let’s just get right into it. We’re going to be talking about strategically unlocking and investing your retained earnings. Your host today, myself, John Orr, Kyle Pearce, is right underneath me, but maybe not for you. But we are the hosts of the Canadian Wealth Secrets podcast. Kyle is the president of corporate wealth.

management here at Canadian wealth secrets. I am the chief operating officer at Canadian wealth secrets. We have our two special guests here. We have a Simon Boyajian and we have our Saki in, they are here from PE gate and we are super excited to welcome them. Sarman and, are, are both partners at PE gate, which is a firm dedicated to democratizing private equity by offering accredited investors, fractional ownership and prop.

private businesses and secondary markets to trade their shares. Gentlemen, let’s get into it. We’re going to be kind of unpacking these strategies we want to talk about today. Just as a reminder before we get going, the content we are going to share here today is for entertainment, informational purposes only, just not financial advice. We always also like to start off our sessions with what you’re going to learn. And specifically, we’re going to unpack how to access

and invest your corporation’s retained earnings without triggering personal tax liabilities. We’re also gonna be talking about how to use those assets to fuel long-term tax-efficient growth. And we’re ready to get into it. We introduced a little bit about us. You’re introducing a little bit about you in the chat. But let’s kick things off. Kyle, I’m gonna turn it over to you, because since we’re talking about retained earnings and we’re talking about kind of optimizing retained earnings strategically. Why is that such a problem for business owners right now?

You know, John, this is one of the biggest challenges and you and I actually were on this journey for many, many years. And ultimately at the end of the day, people eventually start to recognize, especially when they’re earning active income inside of a corporate structure, that those dollars are taxed favorably only until you remove them and start to spend them in your personal name. And this can be problematic, especially when people are trying to figure out

How do I grow and compound my wealth along the way? So today we want to really give you an opportunity, whether you’re an incorporated business owner or not, we’re gonna be introducing two wonderful gentlemen here who are going to essentially give you a little bit of a sneak peek into the private equity space and how they are helping more Canadians have access to private equity investments. And we’re gonna sprinkle on some of the benefits.

to investing in those assets, both either in your corporation or personally. So that’s where for some of our unregistered, not unregistered, our unincorporated business owners or T4 employees will still gain some benefit from this particular webinar here today. So first and foremost, I want to dig in a little bit here with our gentlemen. And first of all, introduce yourselves guys.

I would love to hear a little bit of your story. What got you down the private equity sort of pathway and what is it that you’re hoping to help other incorporated business owners as well as T4 employees, high net worth T4 employees invest in the private equity space?

well, thank you for having us. We’ve been following you for quite some time. I’m glad it was difficult to get on this, but I think there’s a great fit with what you guys do and what we offer. Why we started this, my whole career has been around private equity. And I realized it’s really reserved for ultra high net worth people. And a lot of friends would come to me and say, how can I access private investments?

answer is unless you have 10 million and you could write a million dollar check, you really can’t. So that’s when we started on the journey to democratize private equity and bring those deals to accredited investors. And also we saw the gap in many private equity funds are targeting larger businesses. No one’s really targeting the one to 2 million EBITDA business. And from experience, those are especially the ones owned by

older experienced entrepreneurs, they’re looking to retire. So they’re not really putting the effort into growth, which gives a lot of opportunity to grow. And when you’re buying those businesses at three to four times EBITDA, you’re going to get a decent return even if you don’t significantly grow those businesses. So that’s why we created Pee Game.

And I think something to add, Aariz, is that difference that you saw where you’re working is the larger funds versus smaller funds, right? Is really being able to tap into that untapped kind of business.

Absolutely. So it’s easier to do a bigger, it’s as hard to do a big deal than a small deal, which is just the same amount of work. We’re actually closing a deal today, hopefully, after a very long four months. And that’s why the larger funds prefer larger deals, it’s just less work, but then you have less opportunity to add value to those transactions. So you’re really relying on financial engineering. And there’s other reasons why.

you know, there is benefit of what we do. We’re not a fund. this allows investors to choose what they want to be in versus they’re writing a check to a fund and letting the fund manager decide. Generally, that’s a good idea. the private equity does fairly well. It’s one of the better asset classes, the best. But there’s no autonomy. So a lot of people we talk to want to decide what to invest in.

and when to exit. And that’s something we saw. And I think we see a question about liquidity. Someone just asked how liquid is your fund?

Yeah, certainly. It’s a great question. And I think that’s a massive pain point in private equity, whether you’re paying fees or can’t even exit altogether. Our goal really is to democratize, as John mentioned. So one is to provide access and two is to address the pain point of liquidity. So with the secondary market that we launched last year, it really depends on each investor’s time horizon on when they want to sell.

Of course, we’re not the buyers. There would need to be another investor on the other side of it. But the liquidity is purely dependent on the OSC regulation of a minimum hold period. And then you finding the right buyer based on the price that you set.

And we’ve had trades. the liquidity, we’ve had trades in our investments. And one was a significant trade. An employee basically bought out an investor fully. And their return on that investment, they cashed out at approximately 45 % IRL, which is a fantastic return. And this gave the employee opportunity to own a significant part of the business.

Which we find very, as we speak to lot of boomers that are looking to retire, there’s a right-hand person that has been working for them for many years. And we like to partner with those people who have been there for many years and incentivize them, not as an employee, but to think like an actual owner. And so we facilitate that. that’s what Auro was mentioning. We’ve done that in the past and it’s worked well to really move the mindset of an employee to an owner.

Love it, love it. there is, sounds to me like there is a liquidity and opportunity here. However, you know, this isn’t going to be anywhere near as liquid as say, you know, publicly traded, you know, assets, of course, right? You can’t be in and out and those sorts of things. So technically when you’re coming to the private equity space, typically you’re looking for what we’ll call it a medium or longer term hold. This isn’t going to be anything short term. However, it’s possible.

as we’re hearing here, right? There could be someone who has interest in that asset and they do wanna get in through your platform, which I think is quite nice. The other aspect that really intrigues me about what you guys are doing is that you know exactly what you’re investing in. It’s not money going into a fund and then the fund is allocating it across.

you know, several different deals and you know, the, results will be what they will be down the road really do own a portion of that company. Can you speak to, how do you typically set up each business in its own, you know, structure so that someone actually owns shares in that particular company? And what does that look like and sound like? 

Arro went through a very fun process, so I’ll let him talk to that.

No, we spent a lot of time in structuring this. We’ve had our wonderful lawyers review it from the tax structure as well. And what we wanted to do instead of going with a typical GPLP, the partnership agreement that typically you see with funds, we went with corpse so that you’re investing in a core people understand shares a little bit more. And it mimics the fund structure, but we think it’s a lot cleaner.

Because really a partnership you should use when in a real estate transaction, for example, where you’re going to incur cost losses and you want to hand over those losses in the first few years to the investors because it goes to them personally or to their court. We’re not investing in loss making, we’re investing in cash flowing businesses. So there was no good reason for us to structure it in a partnership style.

you would see in a file. So it’s a pure corp. Each opco operating company has its own corp, as you can see on the right on this chart. So you’re investing directly in a holding company, which holds only that asset, that opco asset. Got it. And if you have a, that’s where the timing comes in. If you want to use your lifetime capital gains exemption, not many people know about this. I’m sure you’re talking about a cow, but each Canadian has 1.25 million in lifetime capital gains, they could pay very little tax on, close to 0%, if they invest in a private business. Real estate doesn’t count. So this way, if you’re bold within our hold for two years, you are eligible for that lifetime capital gains as well. And that’s why you could trade as well. In the fund, it’s hard to value all the businesses. For us, it’s easier to value individual op-goals because you see the capital.

You see the dividend yield. We did have an exit of an investor after one year. He wasn’t thrilled about a 15 % return. That was the dividend yield on the investment. And he expected stronger growth. Others didn’t. So other shareholders. So first you have to offer it to your peer shareholders. And then if they don’t take it fully, then it goes to the market, to other investors.

And we’ve designed it in a way so that when you offer it to other shareholders, they could have fractional ownership because they may not be able to write a hundred thousand dollar check, for example, but they could write 10,000. But then when it goes to the outside shareholder, it’s like eBay bidding, you know, the high spinner, basically.

Yeah. Now, I do want to get into some of the tax advantages of how you’ve structured this in this very specific way, because I think there’s some great advantages here as an asset class in what you’re trying to do. But talk to us about the asset class itself, because I think when, you know, if I’m a business owner, I’m an entrepreneur, I’m an investor, and I want to get into, you know, obviously I’m trying to invest

for my future or my business future or I’m trying to grow my net worth and I haven’t say explored private equity, but then I hear the words private equity and it scares me, right? It’s like, sounds riskier than what I, you you’re investing in say the public markets. So talk to us about like you said are like the best asset class, like you were considering it the best asset class. Talk to us about that, like the asset class itself, because I think when you, Think about investing in private businesses. It sounds riskier than everything else.

And it is, and it is. let me caveat that. It’s the best asset class for me. I like to be on top of my investments. With our investments, you could impact change. So I’ve owned businesses throughout my life. I’ve bought over a failing business, turned it around. And I prefer it personally over the markets, because I have zero control over the market. I’m not good at the market, but I’m very good with…

private investments. know we could, you know, impact change from people, technology and so on. so I feel personally more than, than, than, than.

And one thing to add there, John, if we go back one slide, the chart at the bottom right really just shows you risk adjusted, which is always important to when you’re looking at returns, you also need to take into consideration risk that you’re taking on, right? So you’ve got volatility on the X axis and you’ve got returns on the Y axis, right? So ideally you’re at the top left of that, right? So if you look at private equity,

over 30 years, it’s outperformed any other asset class on a risk adjusted basis. Right? So you have high returns and less volatility than stocks. And that’s something that, you know, on liberation day, when Trump came out and, you know, just slapped a bunch of tariffs, you see Metta, you see Google, you see Nvidia dropping 20, 30%. Right. Right. So nothing changed about the company, right? We don’t even know what’s happening. But yet,

there, everyone gets scared and people start selling panic selling. Right. So when it comes to private businesses, they’re sheltered from the markets, you know, insanity of just wanting to sell for emotional reasons. Right. So to add to our comment that it’s a business where you can implement change and take control, you’re also shielded from, irrational selling behavior due to whatever, you know, a president says. So

So that’s an interesting one. And then if you look at the chart at the top, know, going back to private equity as an asset class, you know, a lot of people hear about it, right? A lot of people know stocks, they know bonds, of course they know crypto because it’s readily accessible to everybody, but not everyone has access to private equity. The people who do, as Aura mentioned, high net worth individuals, family offices, endowments, pension plans, and it’s no surprise why, you

pension plans and endowments such as Harvard allocate up to 50 % to private equity. So it’s kind of this like old school big boy club because it has great returns, but not everyone has that million dollar ticket to write. So that that’s really where this all started is to say, you know, let’s find local Ontario businesses that are great businesses. Owners are looking to retire, right? You have the silver tsunami of many boomers looking to retire and

maybe their spouses, their kids don’t want to take over. So instead of seeing those businesses close, why don’t we incentivize current employees with a stock ownership, we’ll help them grow and make those businesses available to other investors with ticket sizes as low as 50,000.

Yeah. Now just that first chart that you highlighted about the volatility and the returns for those who are listening and not say watching say the slides, you’ve got that stocks being the most volatile because of the examples that you said and also higher returns than say bonds, cash and slightly around real estate level on this graph.

But then you have private equity higher than in returns than everything, but also lower on volatility. So I think you make a great case for that being, let’s say less risky than, than investing in the stock market for good reason. Also that chart is showing 1986 to 2018 historical returns. So, so there’s a good, there’s some good sort of data there to kind of back those pieces up. I, I would love to kind of dig into.

We started this session with promising everybody that we’re going to talk about how do we take retained earnings and use them in a tax advantageous way and also invest in private equity as an asset class. So talk to us about how tax efficient some of the structures, like you’ve carefully crafted your structure to take advantage of some key moves here. don’t know if Sarman or Carl-

think these returns are after tax. So from a tax perspective, we can’t see a better asset price because compared to the public markets, if you get a dividend, let’s say you invest $100,000, until you get $100,000 back, there’s no tax. So because we don’t issue a dividend, we classify it as a repayment of capital. You don’t even have to disclose that in your tax return.

So you get your money back basically. And then you start getting dividends. So that’s when the tax kicks in. So that could be if it’s a leveraged investment, that could be a few years until you’re not paying any tax, even if the value goes up because you haven’t sold. And then if you are owning it personally and you haven’t used your lifetime capital gains exemption, it qualifies for that and you pay very little.

Tax-wise, it is more effective personally and could, SARMIN can cover at a corporate level as well. For the retained earnings, it’s at a different level.

Well, before we go into the corporate side, because I think that’ll be a really, really important one, especially for a lot of our incorporated business owners that are here with us today and those who are listening on the podcast. The part on the lifetime capital gains exemption that I think is really important is that the vast majority of Canadians never utilize the lifetime capital gains exemption, right? And this is even incorporated business owners, right? The vast majority of businesses don’t actually sell.

And therefore there’s a boatload of people out there that are unable to ever utilize that $1.25 million of essentially tax-free capital gains. And this is giving them an avenue to do so if they choose to invest using personal dollars. Now, that’s a nice little segue into those who do own businesses. Cause some people here might say, you know, I do own a business and actually

you know, maybe they’re going to be reaching out to you two gentlemen, because maybe in five years they’re planning, you know, to sell their business. And maybe this is an opportunity for them. So they might have that in their back pocket or they might be thinking, you know, the lifetime capital gains exemption. want to reserve that for my operating business that I now own. However, I’ve got this boatload of retained earnings that are accumulating inside my corporate structure.

maybe it’s inside the operating company, maybe it’s now in a holding company, which is what most business owners eventually open up over time. When we go and purchase these businesses inside the corporate structure, we have essentially a brand new world opening up to us of possibilities. So Sarman, why don’t you maybe take us through that idea here, and then I’ll add a little bit of color as to how this might

really you know dovetail with some of the strategies that we’ve discussed on Canadian Well Secrets in the past.

Yeah, sure, definitely. Thanks, Kyle. So I think that the key thing is just to lay the groundwork is there’s two sections under the Income Tax Act. So the first one is section 112, which talks about inter-company dividend deductions, which allows you to essentially not pay dividend in your corporation when you receive a dividend from another Canadian corporation. So that’s a benefit of investing through a corporation.

And of course, the more money you keep in the corporation, the more you can grow that, right? The next definition is under 186 part four, which is whether it defines whether a corporation is connected or not. if you have greater than 10 % of voting and market value of that operating company, then you are technically a connected company.

And the benefit of owning greater than 10 % of voting and market value of a company you’re invested in pretty much says that you do not need to pay any tax when you pay yourself personally. So when you take that money out of the old code to yourself personally. So that’s what they define as connected. If you own greater than 10%, if it’s less than or equal to 10%, it’s an eligible dividend that’s not connected. And

While you don’t pay taxes on a corporate level under section 112, or sorry, section 112, you do have to defer taxes under part four of 38%. So technically you pay taxes, let’s say you receive $100,000 from the OpCo into your HoldCo of $100,000, you would pay $38,000. And for every $1 that you receive every,

$1 you get back as a refund for every $3 that you take out. So if you pay $115,000 from your hold code to yourself personally, you get that $38,000 back. So it’s really just the deferral, which is definitely a benefit of still holding in the corporation. But of course, the Hail Mary here is owning greater than 10 % in voting and market value.

so that you’re connected and you don’t need to pay corporate tax or any personal tax when you pay a dividend.

Now, as a nuance, think it’s really important for us to clarify here when we say no personal tax, there’ll be no personal tax triggered. However, those dividends are gonna go back to whatever corporation is owning the shares in the operating company, correct? So if I wanted to-

to sit, you have to clarify if you invest your retained earnings in another business, an active business, which we offer, and we structure our deals in a way you are getting technically voting. So so we allowed, for example, on the latest transaction, three corps to invest with us, because they needed to have 10.1 % each, right, you want to maintain 51 % control.

because we need to control that holding company. So when they invest more than 10 % and they have a voting right of more than 10%, so those two have to take place, then any dividend they receive back in the corp is tax free. So that’s the part that is tax free and it has to stay in the corp obviously. Once you pay personally, then it triggers taxation.

So I like to use analogies here to make this super clear. You know, people who are in the room right now, they’re going, okay, I personally own my holding company. My holding company owns the shares and say my operating company. When your operating company passes a inter company dividend up to the holding company, there’s no tax. However, if I do pay out a dividend from my holding company to me personally, I will have to be taxed at that time. And basically

What we’re hearing here is that this is an opportunity for someone like myself who has a holding company who owns shares in my operating companies. I could actually invest at least 10 % of the value in a private equity company that your team has put together and any dividends that are flowing back to my holding company can do so just like they would from any of my other operating companies. And ultimately I’ve got a nice

passive income stream that isn’t gonna trigger any additional taxes to me or my holding company until I choose to say, take them out as a dividend or a salary down the road at a personal level, which may or may not create more retained earnings problems for us to deal with down the road, but that’s where other strategies come into play. And we’re able to essentially utilize some great tax planning here.

while we grow our wealth and keep more of those dollars in our pocket.

And Ara, how do you structure it so that, because it’s one thing to invest greater than 10 % in value, but you need that voting. How do you deal with that?

Yeah, great point. we, because it’s a corporate and not a partnership, we as P and GATE have special shares, special voting shares. that doesn’t give us, that gives us voting rights as well as it triggers our carried interest, which is how we get paid basically. So on this transaction, because there was less than four corporate investors, we actually gave them access to

They have the special shares that we also hold, but it’s meaningless though because we still maintain the 51%.

So is this common? Like businesses are, you’re investing, like walk us through the structure. Like you’re investing in the businesses themselves and then you’re then opening up the equity to people, let’s say people like us who are going to invest at say 10.1 % in that business and you’re retaining ownership so that you can grow. Or is it, let’s say I’m a business owner and I want

to sell some of my equity to other business owners, I reach out to you so that you can help structure that deal. But then how, like am I retaining all the ownership or you’re buying me out?

So we’re in the business of investing in businesses. So we wouldn’t just let you trade your shares on them. So we have to have a meaningful role, right? But it doesn’t have to be a meaningful investment. So we’ve invested minority as well as majority. So we’ve had majority in a hundred percent. So it’s whatever makes sense to the seller and not what makes sense to us necessarily. So we have that flexibility, but we do a complete due diligence on the business.

We do a full financial review. We have a very detailed offering that we’re going to them that we prepare due diligence report. We do quality of earnings external if there’s a leverage involved like in the deal we’re closing. And so you get all of that information in the platform that you log in. There’s a technology involved. So we’ve developed our own platform that

Yeah, it’s very pretty, we think. But it’s functional. So you log in, you see the deal, you commit to the investment, but it’s non-binding. You could change your mind at any point. You get the data, you get our reports, and you decide until the last minute, until you fund, whether you’re in or not. And so typically, we like to be oversubscribed, but we have been on every deal just to…

So, you there’s always someone that can’t commit it in the last minute. And so once we get those commitments, we set up a holding company, the money goes into the holding company or in trust with our lawyers until the transaction closes. So right now there’s money sitting with our lawyers. Once the transaction closes, then it gets released to the seller. And we…

basically have control over the holding company and not necessarily control over the operating company unless we do have more than 51 % or have we, and we generally have a new shareholders agreement, even if it’s a minority investment with the founder. So that we have a lot of mechanisms to make sure they’re on the right track.

This is really interesting and a piece I really want to drive home here and it’s sort of like a little mini epiphany that I’m having as we’re chatting is around the idea and we see in the chat a few people were clarifying like, so wouldn’t it be taxed as passive income? And in reality, if you owned more than 10 % of those shares and because you have voting rights,

Basically what ends up happening is the company itself, the operating company is going to essentially pay tax at the operating company level, just like you would with your own operating company. And those retained earnings can now pass up to the holding company that you own the shares in tax free. That money will stay there. you know, I’ve spoken with so many business owners who are looking for better returns than maybe what they’ve been getting in other assets. So for example, private lending is one that comes up.

all the time. People are taking their corporate retained earnings and they’re utilizing them to give private loans and they might earn 12 % on that. However, that 12 % is going to be subject to the passive investment tax rate inside the corporate structure. And therefore you’re going to at least temporarily be paying about 50 % until you take out some of those and you get a little bit of the refund as Sarman had mentioned earlier.

So when we compare it to the risk, when we think of the risk profile associated with private lending, and then you look at the risk profile of say, investing in some of these very well vetted companies, and the fact that you might be getting say a 15 % dividend, every company and every deal is gonna be different, but if you’re getting those 15 % or 12 % or whatever it is, it’s flowing back to the holding company without any additional taxes until,

we take it out at a personal level. And at that point, there are other strategies and structures, which we will get to a little later in today’s session on how we can avoid taking too much out of our corporate structure and triggering say too much tax at a personal level.

I don’t know if you want to get into that now Kyle or do we want to kind go ahead?

There’s a nice question about dragons then. I love being compared to dragons then.

Yeah, I was wondering that too. So I’ll read that out loud for the listening audience here is that in a nutshell, Kurtick says like in a nutshell, know, PE concept here is sort of like Dragon’s Den. I mean, would we be like dragons who lend money or invest in other businesses and get a percent return from that business? Am I summarizing this correctly?

And I would argue too, like you guys even give a bonus if you actually can fire breathe, you actually get more shares in the business. you not?

Thank you,

I think there’s a lot of similarities. So I think what’s important is that we differ from the P funds where you are the ultimate decider on which deal you want to invest in. So there’s definitely similarities there, right? Like you get pitched opportunity A, B, C as and when they’re under contract and then you will decide. As for the returns,

I believe a lot of the deals that come on Dragon’s Den are pre-cash flow or just break even, whereas we focus dividend yielding, know, businesses that have weathered many economic cycles, know, booms, busts. And so those are the types of deals that we like to focus on.

And we’d never get a show at P.E. Gate because we invest in boring. So Dragon Zen has these exciting new like, look at this, I’m to change the world. We don’t want to change the world. We just want to make money. So we like boring businesses. Our first investment is in a refractory business, basically laying bricks and industrial kilns.

It’s doing very well. So we like boring and it’s not we don’t invest in startups and knowing new ideas like we’re not

This isn’t about home runs. about trying to, it sounds like trying to get the greatest return with the least amount of risk. Although there is still risk associated with any, of course, any business that’s out there, but obviously very well vetted and some opportunities. think I remember you mentioning this in some of our prior conversations that even without any future growth, you should still be seeing some good earnings.

taking place because otherwise you’re probably not going to be purchasing that business or you’re not going to be going into that business.

Exactly. One investment, for example, we love the investment, we love the team. It’s a young growing team, but it’s underperforming, but it’s paying a 15 % dividend. and it’s in the risk of that business. It’s very hard for it to lose money, but it’s growing slower than what we’d like, but you know, we’re comfortable with it. So that’s a type of return. know, not the somewhat we in that one.

For example, we have a minority interest, so we can’t influence growth as much as we’d like when we have control.

I think that’s a good segue, Arad, just to share with the listeners, know, we’re not a one size fits all where we need to take a hundred percent control and then, you know, do a 180 on the operations. It’s really working with the business owner to decide what they want. Right. So if we call it flexible exit options, right. So if there’s a business owner in this case, what Arad had mentioned, you know, was not ready to retire, but wanted to take some chips off the table, sell a minority steak.

take advantage of lifetime capital gains exemption. We get involved, take a board seat and we help professionalize and grow the business for a larger exit down the road, right? So not everyone’s ready to retire now. It could be a few years down the road and we’re still open to working with those business owners because it’s areas that we can help and work together on.

Do you want to keep going with some of those examples? know there’s a comment here, but also kind of pairs nicely with, with sharing examples of like, what does this look like from your end? What does this look like from say a person, a Canadian and you know, incorporated investor who’s looking to do something with retained earnings and, wants to invest. Let’s say they, they, there’s a, there’s an opportunity they’re like highly interested in it. We, we know that the 10.1 % is going to, you know, optimize that.

part of their say their tax their tax position to kind of take advantage of the passing of the dividends from the op co up to the hold co at that point. Do you guys want to walk us through like what does this look like for that person? And then what does that look like for you in operating? Like I don’t know if you want to use an old an old example or not an old example, but an example of a business that you’ve, you know, operated but also helped exit.

Yes. How does it look like from terms of investment for the retainer earnings? It’s just like any other investor. So we would treat them as like any other investor did read the deal files and on behalf of the court that make the investment. The beauty of this is they can own more than 10.1 and they could own 50 % if they want. Should there be room?

We try to distribute evenly as much as possible, like so if there’s interest. So, but they could technically own 25 % and have 10.1 % voting just to make it work for us in terms of control. Once they invest, it’s just like investing personally. It’s no different. You own shares and you have to trust us to manage that.

op co that investment on your behalf. Right. And we have a fiduciary duty. I don’t know if people know this. There is a difference between us and Canada in terms of the director’s duty. So in in the US, the board of directors duty of care is to the investor versus in Canada. It’s to the company itself. So

So we have to do what’s best for the business itself. And that means for all shareholders and not just individual ones or individual or for the CEO, for example. So we have a duty of care and you have the right to trade those shares at any point in time should you wanna exit and you set the price for that. So if you are getting a decent return and or not or…

you want to exit the price you invested in, then you could do so. If you want to increase the price, then you can. So it depends on how well that adds to this performance.

Now, a quick question that did come up a little earlier in the chat, and I think we couldn’t come to it at that time, but there was somebody asking sort of about, you know, like what sort of like costs, like what does it look like, like closing costs in terms of making an investment, let’s say getting into the investment and then let’s say later exiting, you know, is it straight legals? there, you know, what does that look like and sound like? I have a funny feeling it’s gonna be a little more expensive than Robinhood.

where they throw their trading fees right into the spread. So there’s gotta be some costs associated with that. What does that look like and sound like just to give people a sense of what to prepare for?

Yeah, so we’re very transparent upfront in our investment memos and offering memorandums. We take a transaction fee to recoup our time finding the deal that we originate due diligence, etc. That’s for P-Gate. On top of that transaction fee, there’s of course legal fees, which we believe we have one of the best lawyers at one of the best prices. So we definitely work on keeping prices down.

And then we have a operating fee that we charge the business. So this is not to investors, but to the business. And then we have carry. So contrary to typical funds that have a hurdle, we take a straight 20 % on any distributions, whether it’s return on capital or dividend. And then following that, depending on the deal.

The most recent deal that we structured is 40 % after three times money on invested capital.

But we don’t have a management fee. as you’re waiting to invest, there’s no commitment fee, there’s no management fee, there’s no management fee after you invest as well. We only charge a fee if we’re involved in operations or one of our partners is involved in operations. And typically we’ve been well under market. And if we have very little operation, operating role, we take a small board fee to manage.

the board seat. Again, all that is disclosed in our offering memorandums. And we know what the market charges were generally much less than market. And we haven’t had any pushback at all, especially from our managing the costs from the legal perspective, because we control and run the deal, we don’t get into very expensive legal fees.

Now the trading fee, think that another question came up. We’ve taken the hit on all the legal documentation on that. So a complicated deal, which was that employee buyout would have a higher fee because there’s some new structuring involved to make sure it benefits from a tax perspective. But on a trade, we’ve charged $1,000 each from buyers.

So it was only $2,000.

Thank

And that was to cover part of illegal fraud.

Right. I love it. I love it. Now I’m looking at the room. see, right now we’ve got about 40 people with us and there’s a handful, from that I recognize from the Canadian wealth secrets community, some of which, you know, I’ve had calls with and actually a couple clients that have worked with us on some of their corporate management, strategies. And as folks of the podcast would know, we’re

big fans of utilizing leveraged insurance policies in order to help build and grow wealth. This is one of the secret sauce items that can be added in order to make an investment in private equity like what you’re offering here, something that is supercharged. by doing so, what we’ve done is when we take that corporate owned, highly cash value life insurance policy,

We fund that and then leverage that policy to make the investment into this particular asset, this private equity or this particular operating company. What you’re gonna get is sort of an extra secret sauce in some of the other strategies. So we do it a lot with real estate. We have people that do it with the public markets and crypto. While of course here, one of the added benefits is that the dollars that are coming back to the holding company.

are not going to get taxed as we’ve heard. And it can then be used to pay down some of the leverage on that policy. So you now have, again, your money working in two places at once in the most tax efficient manner. Of course, there was tax to be paid. Let’s not kid anyone. The operating company paid tax, but all of that has been factored into the returns. And therefore that dividend is coming after the operating company has paid its due tax, right? So

huge, huge benefit here. there’s a handful of you. I’m not going to call you out, but, I’m sure, there’s some light bulbs going off for some of you that have put highly cash value policies in place for those who haven’t and they’re interested in learning more about this and this strategy and how it can fit in. Definitely make sure you’re reaching out to us over at Canadian wealth secrets.com forward slash discovery. We’ll get you going on.

both your policy, if that’s what you’re interested in, or just going straight into learning about some of the current deals. I would love, guys, can you share? I know you’ve got three on the front burner right now. Are you able to share anything about one or more of those current deals? Give them a little bit of a snapshot. And then, of course, you gotta leave them with some curiosity so they head back to your platform and they go through and actually dig into the content on there..

We had a deals talk on our three deals just recently and we’re happy to talk about them. I think the one that, these are three live deals, meaning they’re under LOI. We’re looking at many other deals, but we only present those that we think are worthy or like are advanced enough and they’ve passed enough due diligence before we actually expose that to our audience.

The one I’d like to talk about, which Sarmin runs the portfolio is the pets business, because that’s going to be an ongoing raise in terms of, so if you do have retained earnings and you want to write a say $150,000 check to get today to get the 10.1%, but you have more to invest, this would be an ideal one, because we’re going to continuously invest in this sector and it’s in the pet services sector.

We’ve already invested in several businesses and we’re looking at a bolt on acquisition, which, Sarman, if you want to talk about that.

Yeah, thanks, all right. We’re super bullish on the pet space. Whether you don’t have a pet, I’m sure you do. And you probably realize that they spend a lot on those pets. Of course, the demographics have moved to having fewer kids because they’re expensive and spending a lot. There’s the humanization of pets and the market size is estimated to double from 150 billion to 30 billion over the next five years. So it’s a massive market.

And our goal really is to consolidate and provide a very professional service across many verticals where we started off in grooming. And then now we’re venturing off into daycare, boarding, and then there’s training. There’s a lot of places to create that synergy. We now have six grooming salons and we’re under contract for Toronto’s largest private outdoor dog park. It’s on two acres of land.

and it’s gonna be where we host our future training sessions. And there’s a lot of opportunity to grow and create that value. this was a lot of the deals that we find are proprietary, nothing wrong with broker deals, but we find the deals that you chase and are not available to everyone is really part of our secret sauce. So.

That is a deal that we’re under contract and super excited to bring.

Love it. I love it. There are so many ideas here. I’m sure that are circling around from the group and you know, to be respectful of your time, to be respectful of everyone’s time here today, joining us live on the webinar and those who are listening on the podcast, I think we’re going to wrap things up here for today. We’ll talk a little bit about some call to action for you.

One nuance here, I think the big takeaway that I hope everyone is learning today is first off, there are other asset classes open and available to you. Private equity is now becoming more democratized through the PEGATE platform. And ultimately you have access to some pretty efficient tax advantages.

when considering this type of investment, whether it’s at the personal level or at the corporate level. One nuance I should add here, we didn’t get to it today, but some people would say like, well, where would you invest Kyle? Like if I was going to invest in one of these businesses, where am I going to invest from personally or corporately? And my answer is typically wherever the money is now. So if you have the money personally,

it’s probably best for you to go ahead and make that investment at a personal level. If that money’s in a corporate structure right now, you might be best to do that. However, if you’ve already got a leveraged insurance policy in place, you might have an opportunity to do both. And we can definitely chat about that on a future discovery call for those who’d like to dig in. Folks, I’m really appreciative of your time here, Sarman and Ara.

You’ll see on our screen here and as well on the podcast in the show notes, you’ll see some links. Their website is pegate.com or pe-gate.com. Both links should work. And for Canadian Wealth Secrets, of course, you can reach out to us. We’re happy to do any introductions along the way over at canadianwealthsecrets.com forward slash discovery. Friends, any final thoughts or takeaways before?

We call it quits for the day. Maybe I’ll flip to Sharmin first and then we’ll go to Aarif.

Yeah, thanks Kyle. You know, we’ve been in the business for six years. We’ve closed seven transactions with the eighth fingers crossed today. And you know, we’ve all had winners, no losers and doesn’t say that, you know, past performance is a guarantee of future, but you know, we are proud of our trajectory and where we’ve been this far. So we’re excited to reach out to

whether you’re looking to invest personally or through a corporation, how we can make a high-yielding, tax-efficient investment for you.

Fantastic. And are anything to add there before?

Well, I love what you guys are doing and I love Canada and we believe in Canada and from even before Trump came into power, we’ve been promoting investing in small businesses and Canadian businesses and there are so many advantages to do that. know, the tax regime really incentivizes you to and we are behind past 10 years in our GDP.

because we just simply invest less. So there is a chart out there that compares U.S. investment into businesses versus Canadian. know, surprise, surprise, they invest more in their own businesses. So I’m glad we’re doing this. And I think and I’m glad what’s happening in the market because people are waking up and we have an amazing country, amazing entrepreneurs. And like Salman said, they’re retiring. So they’re going to need some amazing people to take over.

and unlock the future of Canada. So I’m very excited. So I thank you guys for what you’re doing.

Thank you again. Thanks both of you.

Thank you. Thank you both for being here. Just as a reminder here, folks, if you want to dig in, head on over to pe-gate.com to learn more about the offers and the platform from PE Gate. Head on over to CanadianWealthSecrets.com forward slash pathways. If you want to learn more about how we structure the four stages for a healthy wealth system, whether it’s in your personal wealth system or your corporate wealth system.

You can take our assessment there, our free assessment, and get a report that gives you some next steps on structuring your wealth planning journey. So pegate.com or canadianwellsecrets.com, slash pathways. Thanks again for joining us here in this special joint webinar, and we’ll be seeing you soon. Just as a final reminder, the information you heard here today is for educational purposes only. You should not construe this as financial advice.

that financial advisor that you hold dear. Take care, everyone.

Thank you.

See you everyone.

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.

OPTIMIZE YOUR FINANCIAL FUTURE