Episode 194: Maximizing Your Net Worth With Strategic Salary, Dividends, and Investments

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Are you accidentally draining the wealth-building power of your corporation by pulling out too much income?

Many incorporated business owners follow the same personal finance rules as employees—maxing RRSPs, overpaying themselves, or rushing to pay down debt—without realizing they’re giving away unnecessary dollars to taxes. This episode unpacks the story of a profitable Canadian business owner who thought she was “doing all the right things,” only to discover she was sabotaging her long-term wealth. If you’ve ever wondered how much to pay yourself, when to use RRSPs or TFSAs, or how to balance mortgage payments with investing, you’ll see just how costly common mistakes can be.

In this episode, you’ll discover:

• How to use your corporation as a powerful tax-deferral machine to accelerate wealth.
• The smarter way to balance RRSP and TFSA contributions without triggering unnecessary taxes.
• How simple adjustments in how much you pull from your corporation can add millions to your net worth over time.

Press play now to learn how to stop overpaying the taxman and start building lasting wealth through your corporation.

Resources:

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

Calling All Canadian Incorporated Business Owners & Investors:

Consider reaching out to Kyle if you’ve been…

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

For Canadian business owners, corporate wealth management goes far beyond simple tax planning—it’s about aligning RRSP optimization, tax-free savings accounts, and smart investment strategies with long-term financial goals. Whether you’re weighing salary vs. dividends in Canada, exploring corporate structure optimization, or building passive income through real estate investing Canada, the right wealth building strategies can accelerate your journey to financial freedom Canada and even support an early retirement strategy. By using financial buckets and tax-efficient investing, entrepreneurs can balance personal vs. corporate tax planning while protecting assets for legacy planning Canada. From capital gains strategy to retirement planning tools, estate planning Canada, and investment bucket strategy, the focus is always on financial vision setting and creating financial systems for entrepreneurs that compound modest lifestyle wealth into lasting financial independence Canada.

Transcript:

Have you ever wondered if you’re pulling too much money from your corporation? Today, we share the story of an incorporated business owner from Ontario, Canada, who went from unknowingly draining her corporate advantage to building a wealth plan with purpose. Today, we’re going to be digging into how one Canadian business owner learned to stop overpaying herself, discovered the power of corporate tax deferral, and unlock the corporate wealth building moves.

that are now keeping more of her corporate earnings in her pocket to growing her net worth and legacy for her children. All right, my friends, we’re going to dig in here. And recently I had this call and I immediately after the phone call jotted down and took all my notes and really wanted to highlight some of these things that are going on here for this business owner because it happens so often. We chat with business owners all the time and

you get into a really tricky place when things are going well in the business and trying to figure out what you should do with the money. Now, on average, this business owner is essentially earning around $300,000 or has $300,000 inside the business being generated that they were able to pull personally. Now, why I say this is because they were taking it as a salary.

And therefore it was draining the corporate profits and basically leaving a zero. and they were making some moves that ultimately, you know, I would argue, I don’t want to say they’re wrong because you know, all of the choices we make are, going to have an impact. They’re going to have some sort of effect on things. And ultimately what she was doing was taking the extra money that she was pulling from the corporation to pay off a primary mortgage.

understand that and honestly paying off debt while it might not be optimal it certainly does make you feel more secure right so there are some moves there however we do have to consider what sort of costs and expenses that we’re giving up in order to make those payments so we’re gonna dig into that here a little bit today so the business here just to give you a quick little summary it’s been profitable for over six years

but has been following pretty conventional personal financial advice. to be honest, conventional financial advice is typically pretty strong when you’re a T4 employee and you can’t control how much you’re paying yourself, right? So I don’t want to, you know, sort of make it seem as though that financial advisors out there that are saying to max RSPs every year, no matter what, and those sorts of things are wrong or bad advice.

But when it comes to incorporated business owners, this can get a little bit more tricky, especially when the business is profitable. We have a tax deferral machine known as the corporation or the corporate structure. In this particular case, there’s an operating company and a holding company. So we have the opportunity to take less income in order to defer some of those personal taxes that we would pay each and every year. So let’s chat a little bit about this.

One part that I think might stand out to some of you, maybe perk up your ears is that recently this individual business owner made an $80,000 lump sum payment on her home mortgage and then heard the episode where we talked about why we don’t want to do that. basically this is quote unquote, she said, I’m doing exactly what they said not to do. Now I wanna make sure, and we definitely reassured her that listen,

taking money and putting it down on debt is not a bad move, okay? But it’s how you got the $80,000 that you may not have recognized is costing you more than you realize. So let’s get into some of the numbers, let’s chat a little bit about this, and then let’s talk about maybe how we can do things a little bit differently because…

It’s not an all in or an all out strategy here, okay? She’s been maxing out her RSPs, great. She’s been putting money into tax-free savings accounts. These are awesome things. The tax-free savings account’s an amazing tool. The challenge though in a home where there’s only a single income like there is in her particular house, you have to control.

where those dollars are and does it make sense to pay a significant amount of tax now in order to get it into a bucket like the tax free savings account that allows it to grow tax free and you can pull it tax free but you got hit with massive taxes in order to do so. So when we look at this currently taking out about 300,000 put down about $80,000 recently on the home so you can see here that you know she has more or had more money available to her.

than she really needed. And really what she’s saying for lifestyle, she really only needs somewhere around 120 to 150 annually. Now, I always take those numbers and sometimes I’ll inflate them a little bit when we’re doing any sort of estimates here. So, you know, keep that in mind. Sometimes people underestimate what they really need and sometimes having a little bit more is not a bad move. Plus, you always have the opportunity that you could take, say, a dividend.

on top of whatever salary you’re taking for yourself. So let’s talk about this a little bit more. When she takes $300,000 out of her corporation as a salary, she ends up paying an average tax rate of close to 40%. It’s about 38 % here in Ontario, okay? That is over $100,000 in tax. That is a lot of money to be paying in tax in order to get money out and then potentially not required or not needed.

Now, before people say, well, yeah, you’re gonna get that money back through RRSPs, the problem is, that our RRSP contribution room maxes out at about $180,000 currently as we record this, just a little north of it. Meaning, if you take out more than $180,000, you’re not actually introducing more contribution room.

So for some people that are big fans of the RRSP, I’m not telling you not to fund your RRSP at all. I like to fund my RRSP a little bit every year. It’s all about diversification of buckets, but I don’t want to be pulling out more money than I need, especially above $180,000 if the plan is just to fill up the RRSP or the tax-free savings account. We have to be a little bit more strategic about this. So we’re not saying it’s an absolute no.

But in this particular case, she’s saying what she needs for lifestyle is more between 120 and 150. Therefore, there’s a little bit of a gap there. Now, if she takes that 300,000, she’s going to introduce about $30,000 of our RSP room or contribution room for that year, meaning she could take 30,000. That leaves her with $270,000. So that 30,000 can go into the RSP.

We can then get basically half of it back, which is great. So you’re gonna put 30 in, you’re gonna get $15,000 back, because that was the tax that you paid essentially in order to get that 30,000 out. And you get to do something else with it. The problem is the other $270,000 was still taxed at a very high rate. And you don’t have enough room in order to get it into the RRSP. Now, if you pay 50 % on

you know, every dollar, you know, over $250,000 or so, you’re basically taking 50 cents of every dollar and throwing it away in order to put it into the tax-free savings account, for example. Now, the other problem is the tax-free savings account only gives you a small amount of room each and every year. Now, if you haven’t utilized the tax-free savings account to this date here in 2025,

you’re gonna have over $100,000 of room, which is great. But again, if I need to take 100,000 out of my corporation, and let’s say I’m paying 50%, if it was as a salary, if I’m paying 50 % on that, I now need to take essentially $200,000 out of my corporation in order to fill up that $100,000 bucket. So I recommend for your RRSP and for your tax-free savings account, take little…

amounts now I say little little comparative to what we were just discussing to still utilize those buckets but let’s not make a huge huge tax bill for ourselves in order to do so. The other piece that’s really important to note is that I like to think about the corporate structure is like it’s still a prison like don’t get me wrong like I’m a big fan of utilizing corporate wealth management strategies and we talk about them all the time here but let’s be honest in a perfect world.

All of that money and all those assets are in my personal pocket. They’re in my personal name so that I can do whatever I want with them. I would have already paid tax at a personal level. All of those things. gives me the ultimate freedom and flexibility. The problem is the cost in order to get that freedom and flexibility. So we have to be more strategic. The corporation is going to essentially act like a low security prison, in my opinion. Why low security? Because

You can do so many different things, right? You can open new businesses. You can invest in whatever you want to. You also have the tax deferral at the personal level being maintained in the corporate structure. Now, what you don’t have directly inside the corporate structure is, a bucket like for our RSPs. However, I will argue, some people, it might make sense to look into an IPP, like an individual pension plan, or a PPP, right?

pension plan. can look into some of these things. However, for a lot of people, they’re costly and you know, they’re they’re costly to set up, they’re costly to maintain. And therefore for a lot of people, if you like the idea of the RSP, utilize it, but utilize it when it makes sense to utilize the RSP. I love having contribution room. I don’t want to necessarily max it all out in any one given year or take too much money out in order.

to essentially just drain my company or my corporation. Okay, so we wanna be a little bit more strategic. The RRSP in my world, in my mind, is a high security prison, okay? You get it in there. Now, mind you, the result is much better. It grows tax-free in that prison, so it’s not all bad, but trying to get the money out is where we run into problems, right? A lot of people say, well, I’ll just let it grow and I can defer taxes until I take it out as income.

We can do the same thing inside a corporation depending on the types of investments we’re making. If these are capital gain assets, meaning they’re growth assets, so they’re going to appreciate in value and you’re not gonna sell them for a really long time, the result is the same, whether it’s inside the corporation or whether it’s inside the RRSP. The big difference is when I go to sell that asset, whether it’s in the corporation or in the RRSP, there are going to be

tax consequences if I want to get it to my personal pocket. Now, if I want to get it to my personal pocket in the corporation, if I have a million dollar gain, let’s pretend I had this, you know, I bought gold and you know, I bought gold and it appreciated, I had a million dollars of gold and it appreciated to $2 million. First of all, the first million dollars is still quote unquote stuck inside the corporate structure until I choose to take it out personally.

However, I’m not gonna get any additional tax on that. You know, I can reinvest it and put it in something else if I sold the whole $2 million of gold. The other million, the million dollars of profit, right? The million dollars of called a crystallized capital gain is going to give you a 50 % tax credit. And basically what that means is I’m going to be able to take $500,000.

and there will be no tax on that $500,000 because of the capital gains exemption, the 50 % capital gains exemption. So, or inclusion rate if you wanna call it that. So when I take that 500,000, I can actually take that as a tax-free dividend to me, the shareholder, at a personal level. That is a huge, huge win that I can get growth from my corporate structure out to me tax-free.

Now the problem you run into is you’re of course gonna have to pay tax on the other 500,000 for the sale of that investment. So you’re gonna pay about $250,000 of tax on that $1 million gain. That’s gonna go away. The other $250,000 is gonna stay in the company and it’s gonna be retained in the company. Now I have $1.25 million of

dollars or retained earnings in this company that are still being deferred from me paying any personal tax on them. So there is a cost to doing this, but now let’s take that same gold, so to speak, or whatever that growth asset is, have a million dollars that I had put in my RSP, it grows to $2 million. I can sell that asset and leave it in the RSP and I’m not gonna pay any tax at that time. But when I go to take it,

out to me personally, if I want to take and have $500,000 in my personal hands from that RRSP, I’m going to get taxed on that $500,000 at my personal tax rate. So I’m going to essentially be paying $250,000 and I’ll get to keep the other $250,000. So I would have to actually take out double what I want to take out to get the same money in my pocket at a personal level.

which means I have less money in the RRSP leftover and I have more money left in my low security prison, the corporate structure that I can reinvest, do other things with and so forth. So advantages to both, we’re not going to say that both are or one’s way better than the other, but we have to just be aware when we fund that RRSP, let’s do it strategically. And for this particular business owner, I would argue that if she needs about 125,

to 150 or 120 to 150 to live on, she might choose to take about 180 out as a salary, max out that contribution room that she has. So now she will have essentially $30,000 of RSP room in this particular year. She could then take the extra 30,000 because remember she only needs 120 to 150. So we’re gonna take that 30,000. We’re gonna put it in the RSP. She’s gonna get.

her tax refund of just south of half of that 30,000. She’s gonna have say, you know, I’ll just estimate 12 to $13,000 coming back to her. That’s gonna help her to have a little bit of extra buffer room. Maybe that’s the money that she utilizes to put into the tax free savings account. You can get some win-wins out of doing this. And that’s gonna leave her about 120,000 or so, maybe a little bit more depending on the taxation to

have in the corporation that she can then use in order to grow and allow her to grow her assets inside the low security prison. So now she’s got a little bit more diversification. She’s paid a whole lot less tax right away. And her net worth in that particular year is actually greater because she’s made these moves, right? Like, let’s not forget, when we don’t pay that tax,

my net worth immediately is going to be higher. Now, the reality is, and I’m sure a lot of you have thought about it, is that if she were to take it all out of the corporation, that net worth goes down, right? If we take all of our assets and sell them, our net worth goes down a whole lot. But the goal is try to get that net worth up, try to compound what we have in that net worth, and then we have to try to be strategic so that we’re not wasting money along the way. Because if we can compound bigger numbers,

over the duration of our lifetime, we are going to be in a much better situation. Now, let’s talk a little bit about the goals that she had for her specific situation. The goals were that she wants in 10 years to have $100,000 of what she calls passive income. Now, I’m just gonna argue it’s gonna be, you know, passive, it’s gonna be off of the investments and so forth. So we’re gonna do some quick math here and say, even though she’s got a mortgage on her primary residence,

even though she’s got a building inside of the corporate structure that she uses to operate out of, and there’s a mortgage on that as well. We appreciate the buildings out and we pay down the mortgage, just no prepayments of mortgage, just about five and a quarter percent, I believe, was where her mortgage rates were. She just makes her monthly payments as is over these next 10 years.

Those buildings are gonna obviously continue to appreciate. We’re gonna use 3 % as a number somewhere around inflation. And of course, it’d be great if it’s higher than that, right? If those buildings are worth more, but we’re gonna be conservative. Those mortgages are gonna be paid down. And in doing so, the equity in our buildings will have grown by about $2 million. That’s fantastic. Her investments currently, she’s got about $300,000 of investments at a personal level.

she has about $180,000 of cash sitting in the corporation, just kind of like rotting away and inflating away. We’re gonna assume that we take that cash and we’re gonna invest it. And we’re not gonna get too like picky here, we’re just gonna use some pretty general numbers. But if let’s say she takes an extra $150,000 each year and invests it through the corporation and in the RRSP based on the strategy we’re looking at,

and we look at a compounded rate of around 8%. Now for some people that might be a little aggressive, so you can always push it down. For some people that might be conservative, right? It depends on the assets that we’re investing in and that’s something that we’re gonna have to continue to work with this individual on to make sure that it does fit their risk profile. However, if we take it at 8 % and we compound it out and she continues adding around $150,000 each year,

to investments and we’re not talking about fancy ones. We’re just indexing here. Okay, we’re gonna have a good setup of equities to fixed income and what she’s gonna end up with is about $3.2 million in 10 years. If we look at the equity in the building, in the holding company, she’s got about another $800,000. That’s gonna bring her investments to about $4 million.

And if we do some quick math on the 4 % rule, $4 million, and if we take 4 % of that, that’s about $160,000. So that’s gonna put her well ahead of her goal just by doing some tweaks here instead of losing about $50,000 to $60,000 of extra tax that’s being paid over time to take too much out of the company.

and try to do things like say putting $80,000 down on a mortgage that we can pay over a much shorter period of time or sorry, over a longer period of time, making much shorter payments on. So all of this is to say that if you’re feeling unclear of your path, whether you’re incorporated or maybe you’re just a high income T4 employee, know, reach out to us. This is what we do. We have someone here who’s getting clear on the vision of what she wants.

still some work to be done there. She got some investments, that’s stage three. The parts that we’re really looking to frame out is what are the actual moves that we need to do to optimize along the way and ensure that she’s not in a position where she’s ever cash crunched. That’s where we talk about the personal and corporate wealth reservoir. So where are you at? Are you looking to figure out your journey and get a little bit more clear on your pathway?

head on over to canadianwealthsecrets.com forward slash pathways, and you can take our short pathways assessment. It’ll take you through the four stages of our Canadian wealth building journey. And if you’re ready to reach out for a discovery call, you can reach out anytime over at canadianwealthsecrets.com forward slash discovery, and you can book a call today. If you haven’t yet, do us a huge favor. If you found value here, share it with someone you love.

and do us a favor and write a rating and review. All right, my friends, we will see you in the next episode. Have yourself an awesome day. And just a reminder, this is not investment advice. This is for informational purposes only. You should not construe any such information or other material as legal, tax, accounting, investment, financial, or other advice. And as a reminder, Kyle is a licensed life and accident and sickness insurance agent, and I am the president of Canadian Wealth Secrets, Incorporated.

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

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