Episode 204: The Pass-Through Structure: How to Grow Corporate Wealth in Canada

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What if you could pull money out of your Canadian corporation, grow your wealth, and dramatically reduce taxes—all at the same time?

Most successful incorporated business owners in Canada face the same dilemma: profits are trapped inside the company, and pulling them out personally triggers massive tax hits. Many try to invest retained earnings directly or park them in GICs, but those strategies only delay or worsen the tax burden. In this episode, Kyle reveals a powerful “pass-through” structure that lets your money work in two places at once—while building in long-term protection and flexibility that traditional strategies miss entirely.

You’ll discover:

• How to use a corporate-owned permanent insurance policy to grow retained earnings tax-free like a GIC—but with far greater upside.

• A strategy to leverage your policy to invest in real estate, ETFs, or private placements—so your dollars generate returns in two places simultaneously.

• A way to unlock tax-free capital for yourself and your heirs, transforming a typical tax liability into a wealth-building advantage.

Press play to learn how to turn your corporation’s retained earnings into a dynamic, tax-efficient wealth engine.

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.

Canadian business owners face complex tax challenges as they strive to build lasting wealth through their corporations. By using pass-through structures, optimizing retained earnings, and integrating insurance policies with smart financial planning, entrepreneurs can create a powerful foundation for corporate wealth planning and financial independence in Canada. A well-designed Canadian wealth plan blends tax-efficient investing, RRSP optimization, and salary vs dividends strategies to maximize returns while minimizing tax. Whether focusing on real estate investing, capital gains strategies, or financial diversification, the goal is simple—achieve financial freedom and early retirement while maintaining a modest lifestyle of wealth. With thoughtful estate and legacy planning, optimized corporate structures, and disciplined investment bucket strategies, Canadian entrepreneurs can transform their corporations into engines of long-term wealth building and financial security.

Transcript:

Hey there, Kyle here again, and we are going to continue digging into where we left off in the last video. So we’ve unpacked the problem. We’ve got multiple tax challenges here when you’re a successful incorporated business owner here in Canada. Anywhere in Canada, this is happening if you’re successful, which means you have profits and you’re trying to get those profits out to you personally at some point now or in the future. So we’ve unpacked what people are typically doing now, which is doing investments inside of the corporation. Of course, there are some people who are just ripping the bandaid off. And what we’re trying to do is find a way that we can actually have our cake and eat it too. So rather than just piling as much retained earnings into investments that are capital gain bearing, or appreciating as we would call it, because again, it still just kicks the can on the taxes to be paid on those retained earnings. What we’re actually going to do is we’re actually gonna create a pass through structure. Now, what’s really important to note is that you already have a pass through structure that’s in existence and you typically use it each and every day when you’re in business. And that money is likely sitting in some sort of checking or savings account, which I would argue is, a pass-through structure, right? You typically aren’t going to keep that money there forever. That’s not the end goal for it. It’s just a place to put it for now. Well, what we’re gonna do is something very similar, except we’re gonna add another pass-through structure that’s going to actually not only act as a pass-through structure, but it’s gonna have other qualities that are gonna help us to deal with the tax challenges that you’re experiencing. Now we’re going to unpack them here and we’re going to slowly unpack them and then we’re going to zoom out and talk about why this particular pass-through structure.

So let’s dig in here. So over here, let’s pretend we have a million dollars of retained earnings. Now I do want to mention here, I’m going to give one example today. And of course that means it’s not going to be exactly your example or your situation, right? So keep this in mind that we can do this in many different ways, as long as there’s some retained earnings or if each and every year you’ve been taking out a significant amount in dividends or salary, this is going to work for you as well. I’m going to use the assumption here just to keep the numbers simple that we have a million dollars of retained earnings every single year. Now again, this can work if you have 50,000 of retained earnings every single year or 300,000 in retained earnings or 10 million in retained earnings every single year. And there’s some variation depending on how much you’re taking out for example. So if you were taking out say 300,000, in salary or dividends every year plus you had a hundred thousand of retained earnings, this could be a really helpful structure for you to limit or reduce the amount of personal taxes you might be paying now or today. So we’re going to start with this one example, but you can actually, you know, sort of, you know, extrapolate from this example to your particular situation. And of course, so let’s look at this now. We’re going to assume a million dollars of retained earnings each year. And we’re going to assume here, we don’t have to take the whole $1 million to pass it through here either. We’re going to do that as the example, but there’s all kinds of different variations that can be done. So I’m gonna assume though that we’re taking this $1 million and we’re actually gonna put it into our pass through structure that we’re gonna create over here.

and I’m going to make a little box to represent this pass-through structure. Now, we’re going to put that million dollars in there. So we’ve taken it from one pass-through structure, checking our savings account, we’ve put it into another. The one thing about this particular pass-through structure is that there’s a lot of unique qualities that it has that it’s going to help us with in dealing with these tax challenges. And there’s going to be some bonus incentives as well. The first thing is, is that the first bonus incentive, our focus here, but it is going to be helpful later and you’ll see why, is that when we put it into this bucket, this bucket is going to every year be a place that we’re going to keep dumping our retained earnings into. And every year that we do this, over time, on average, you’re going to get growth like a GIC. So that’s like a GIC. It is not a GIC this bucket. It’s going to be growth like a GIC. So four-ish percent to potentially five percent per year. and it’s going to be tax free, which is quite fantastic right in and of itself. So for those of you out there that may have a lot of retained earnings going into GICs every year or other interest bearing assets, keep in mind that you’re paying 50 % of the return in passive income taxes. So by simply taking it from GICs and putting it into this bucket, even though we’re gonna talk about all the other benefits that this bucket’s gonna have, you’re going to be well ahead and you potentially can really explode your net worth when comparing to say a GIC over the next five, 10, 20 years, however long the runway might be. So again, this is a bonus. What we then do is we actually utilize this capital in order to do whatever it was that we were going to do anyway.

All right, so in this case, if you were the person that was putting it into investments, we’ll still do the same thing. We’ll take that money and we’re going to put it into investments. Okay, now I’m speaking in general terms here. So we have a million dollars going in and we have a million dollars going into this investment over here. The one nuance that I want to share with you is that this is not actually taking the money out. We’re going to leave this money in here. It’s going to grow and tax-free at that four ish to five ish percent rate over the lifetime of this particular structure and we’re actually gonna borrow against that bucket in order to make this investment. So of course there is something negative that happens here. We have interest and we’re gonna talk about the interest afterwards and how we deal with that because really what we’ve done now we’ve taken money through we’re gonna grow it and then we’re gonna grow it in another spot. We have money working in two places at the same time. There is a small cost to that and we’ll talk about that in a future video how we’re gonna deal with that. But that’s not all we’re doing here. We’re not just looking to have our money working in two places at once. That’s actually really helpful. It’s gonna be a bonus. It’s gonna be helpful over the long term to your net worth, but we still haven’t addressed like, how’s it gonna deal with our tax issues that we’ve been talking about? Well, there’s a awesome quality that this particular bucket has that really no other type of bucket has. And what it is, is it’s called a death benefit. And that death benefit comes with only one type of financial asset, and that is insurance. But we’re not talking about term insurance that you were renting or anything like that when you were younger and you wanted to make sure you were just protecting your family just in case. This is going to be a permanent policy that will pay out down the road. It’s not if it’ll pay out.

it’s when will it pay out because you will eventually die. Unfortunately, if no one ever told you that, I’m sorry that I have to be the bearer of that news unless Elon Musk comes up with something, you know, special for us in our lifetime, that will happen. And this death benefit will pay out. And on a million dollar policy, while different ages and different health considerations can factor into this, recently when I ran a one million dollar policy on a individual who was about 50 years old, we were talking north of 10 million dollars. So I’m just gonna put 10 million to keep it simple. and that’s the number we’re going to use for our example. Of course, every individual is different and we would want to run a scenario for you. Now some people might be wondering, well, why do I want this feature? And actually this is gonna be one of the big reasons why this structure is gonna be so powerful inside of your corporate structure. Be it inside of just an operating company or in a holding company or within multiple companies, wherever this is happening, we will help you with where it should go. But what this is going to do down the road, when you pass away or when the insured person, the key person in your company passes away, what’s going to happen is this money is going to pay out to your company tax free. So $10 million will pay out tax free and your capital dividend credit or your capital dividend account will receive a credit of essentially the net death benefit.

Now how to explain what I mean by that. If we looked at year one and we were to put in $1 million into this policy and the death benefit was 10 million and you were to pass away later that week for example, you’d get out about $9 million tax free to the next shareholders. And that is going to be a really important part of this structure but not the main focus. because this is not, we’re not doing this for just everyone else. What we’re going to do is we’re actually setting ourselves up to be able to grow our net worth and to give us the optionality to do so much more with the retained earnings in our corporate structure to not only help our estate planning, that’s gonna be a nice byproduct. but we’re gonna talk about different ways that we can actually grow this money and be able to have tax-free cashflow at a personal level. So with this, what we have is the idea that if money is trapped in our corporation, a lot of people are either ripping the bandaid off and paying a lot of tax to do it, or they’re putting it directly into assets. What I’m telling you now is that especially if those assets were interest bearing assets, here you’ve got a bucket that’s going to grow tax free like a GIC. So for our conservative friends, that might be where that money sits for a while. and you don’t necessarily need to put it into any other assets. For those who are wanting to invest it in other things, if it’s index ETFs, if it’s into real estate, private placements, whatever it is that you want to invest in, we’re going to then leverage against this bucket in order to make those investments. So now we have money working in two places at once, and we have interest here that is going to have to be paid on the borrowed amount. but if it’s going into investments, you will have interest as an expense that can be written off against some of that income, which is a fantastic bonus. But the part that you’re gonna be most interested in is that when policy sizes are large enough, I would argue if the policy is at least $300,000 per year of premium, then you actually open the door to use personal leverage strategies. So what we’re talking about here is actually building up an asset on your balance sheet inside your corporate structure and then going to a third party lender and talking to the lender to say, I would like to borrow money at a personal level against my personal assets. And one of which is this asset right here. Okay. Now this is a corporate owned asset. However, you own the shares of this structure. So what we’ll be talking about in later videos is exactly how this will work but ultimately the goal would be that I can actually leverage out up to a hundred percent of the premium going in at a personal level and we’ll tell you how you can do this in a compliant manner while also growing your net worth at the same time instead of seeing your net worth dwindle each year as you pull money out. So imagine a world where if you were pulling out a million dollars and you were losing $390,000 in tax every year that you could actually pull out the same million dollars, have a similar cash flow and also grow an investment bucket at the same time.

So right now what we’re looking at is ultimately the pass through structure, which is called a permanent insurance policy. And the type of insurance policy we’ll talk about in the next video. We’ll actually look at an example of how this type of policy will grow and how we can help you so that you design the policy that’s going to help you achieve this leverage ability and optionality to either invest inside of your corporation while having this exit plan at the end or to leverage at a personal level and still be able to grow your net worth at the same time. All right my friends thanks for sticking with me and we will see you in the next video.

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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