Episode 216: The Capital Gains Time Bomb: Why Waiting Could Cost You Millions

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Are your capital gains quietly building into a financial time bomb that could detonate right when you need liquidity the most?

For many high-earning Canadians—especially tech professionals with stock options and RSUs or business owners with most of their wealth tied up in their company—capital gains don’t feel dangerous… until they suddenly are. As positions grow year after year, so does the tax liability, the concentration risk, and the emotional resistance to selling. By the time liquidity, diversification, or retirement planning becomes urgent, the opportunity for elegant, tax-efficient strategies has already closed. This episode digs into why capital gains become such a trap, how optionality slowly disappears, and what both employees and business owners can do before they hit a point of no return.

In this episode, you’ll discover:

• How concentration risk quietly compounds and why waiting makes the tax burden exponentially harder to manage.

• The strategic moves that only work before you need to sell, from trimming positions to pairing gains and losses to building diversified buckets.

• Why business owners face the same capital-gains trap as employees—and what they can do to de-risk while keeping growth potential and flexibility intact.
  

Press play now to learn how to unwind capital gains strategically—long before the tax bill dictates your decisions. If you’d like, I can tighten the tone further, make it punchier, or create a more SEO-optimized version.

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.

Building long-term wealth in Canada requires more than earning a high income—it demands intentional capital gains planning, smart financial strategy, and a clear financial vision. Whether you’re selling assets, optimizing RRSP room, choosing between salary vs. dividends in Canada, or structuring corporate wealth planning as a business owner, every decision shapes your path toward financial independence. A strong Canadian wealth plan blends tax-efficient investing, real estate investing in Canada, and well-designed financial buckets to balance growth, liquidity, and security. For Canadians pursuing financial freedom, early retirement strategies, or a modest-lifestyle wealth approach, understanding personal vs. corporate tax planning, capital gains strategy, and corporate structure optimization becomes essential. From passive income planning to estate planning in Canada, and from evaluating real estate vs. renting to leveraging retirement planning tools and corporation investment strategies, the goal is simple: create a diversified, resilient system that supports wealth building strategies in Canada today and protects your legacy for tomorrow.

Transcript:

Welcome back to the Canadian Wealth Secrets podcast where we pull back the curtain on the financial strategies that most Canadians, especially high earning professionals and business owners, never get to learn but should have. Today we’re going to be talking about a topic that every wealthy Canadian eventually faces, but most don’t deal with until it’s too late. That is capital gains, specifically.

The capital gains time bomb that builds quietly over years and explodes the moment you finally need liquidity, diversification, risk reduction, or at the very end or the very least when we move on to the next place.

This episode is going to hit home for a lot of people, especially those who work in tech, banking, engineering, or any field where stock options or RSUs form a big part of your compensation because deferring capital gains is great until you actually need to sell.

Yeah, let me start with a story about a couple. We’re going to call them Aaron and Maya. Their real names, of course, are different and their details have been adjusted to maintain privacy. But the financial situation is very real and extremely common amongst high earning Canadians. So Aaron’s 50 years old. He’s been with a massive now trillion dollar public tech company for over a decade. One of those global giants whose stock has been on an absolute tear. His compensation, of course,

a solid salary, a big annual bonus and stock options. Lots of them over 10 to 15 years. These stock options quietly accumulated. He exercised some held others and because the company just kept performing, the value kept rising and rising and rising. So by the time Aaron reached out to us about 50 % of his entire net worth, that’s over $2 million in this particular case were tied up in one.

Mm-hmm.

Ooh.

company’s

stock. Now on paper, that’s fantastic. But Aaron had a problem. Actually, he had two problems. Problem number one is his entire financial world revolved around one company, not just his stock options, but his salary, his bonus, the employer stock and his family’s financial future all tied to the same corporate risk. If that company stumbles, his job could be at risk.

Hmm.

Maybe his bonuses drop and at the exact same time his investment portfolio could be cut in half. That’s what we call concentration risk.

Right.

Problem number two, his unrealized capital gains were massive because he held these shares for so long. And because he’d so much, or they’d grown so much, his adjusted cost base was extremely low, which actually means, if he sold today, like, he would trigger hundreds of thousands of dollars in capital gains tax. And I would say that tax bill was the thing keeping him from selling.

which meant that the concentration risk is just getting worse and worse. And this is actually the trap, the capital gains trap.

Yeah, now here’s the important thing that I want you to take away from this episode. Deferring capital gains is great until the day that you need to sell. But once you need to sell, all of your optionality seemingly disappears, especially if we haven’t done anything to plan or prepare for this eventual offsetting or selling of these assets. Most Canadians only think about capital gains when they’re forced to sell. But capital gains planning isn’t something you do when you sell.

It’s something that you need to do years before you sell because without advanced planning, the tax bill becomes unavoidable and you lose all the elegant creative strategies that would have saved you money and reduced your risk at the same time.

Mm-hmm.

Let’s unpack exactly why capital gains builds into such a major problem when left unmanaged. One, concentration grows quietly. Every year you don’t sell, your position grows. Every year you don’t rebalance, the tax liability grows even faster. And every year it becomes emotionally harder to sell that asset. Okay, number two, unrealized gains compound faster than your actual income.

A big stock position now can grow by $100,000 in a year. Your salary? It’s probably not likely. Eventually the gains become so big that you couldn’t offset them even if you dumped your entire RSPs in one year.

Now, number three, feels like selling equals losing. Like emotionally, especially in this particular scenario, if you’re getting stock options and, you know, if the stock options have grown to a point where this capital gain, this unrealized capital gain is so large that you don’t want to sell due to taxes, likely you’ve had a very high salary along the way. So unless you’ve retired, quit, lost your job, you’re probably in a situation where selling any portion

of those capital gain assets are going to trigger actual high taxation and actually the highest tax you can be charged in the capital gains category, which is going to be 50 % of that gain and in the highest tax bracket really translates to just north of a quarter of what you’re selling. So emotionally, people think if I sell, I’ll owe all of this in tax or I’ll lose this big profitable position or what if the stock goes higher from here and

Mm-hmm.

These emotional resistances keep people holding and holding and holding until they hit a point where diversification is no longer actually optional. However, when you get to a place where a liquidity event needs to happen, it typically happens suddenly. So in Aaron and Maya’s case, there were several reasons why they wanted liquidity. First of all, they wanted to start reducing risk. They woke up one day and actually realized that

their net worth is highly tied to one specific company, which is obviously problematic. Now they wanted a more balanced investment strategy. They’re looking at private equity opportunities as well, and they have corporate planning that they wanted to consider optimizing. And then finally, they want a safer foundation as they move towards retirement. We’ve talked about this on the show quite a bit. Your risk tolerance naturally as you age and as your pile grows,

tends to become more conservative. The moment these needs appear, that planning window is actually closed because you’re already there. The capital gain already exists and now we have to deal with the taxation that will arise from selling any portion or all of that unrealized capital gain.

Right, and at that point it’s unavoidable. So when you’re forced to sell, don’t have, when you’re forced to sell, you don’t have a prior strategy. The capital gains tax becomes a blunt instrument. There’s no finesse, you know, there’s no spreading it over years, there’s no pairing it with other losses, it’s here, it’s now, and there’s no thoughtful diversification plan at this point because it’s too late.

It’s just a massive tax bill. It’s due, like right now it’s due immediately. This is why waiting is the real danger and not the gain itself. This is the trap.

So let’s talk a little bit about the optionality window. You’ll hear us talk about optionality on this show. We’re all about keeping options open because things change over time. And that window of time typically can be like a three to 10-year window, but ultimately it will really depend on how long you’re holding an asset and what that growth looks like. But you can build a smart strategy from the beginning to start thinking about how you might

gradually harvest capital gains off of an asset like this. So for example, maybe 10 years ago, they could have been selling little portions of this investment and then reallocating into other investments along the way. And maybe even considering putting some of that portion into their RSP and tax free savings accounts, right? We can offset them. Of course, if we offset them, then we have to know that as this position builds,

We have to recognize that that may build beyond our comfort level in terms of the asset allocation we have to that one asset. So we have to be very cautious. Real estate investors fall into the same category. You buy a bunch of property, a bunch of real estate, and if it does appreciate, and as those mortgages are paid down over time, you might wind up seeing that the vast majority of your wealth is inside one asset class, which is real estate.

If you talk to those who have condos in Vancouver or Toronto right now, as we record this, they’re probably feeling like, shoot, I wish I had a little bit more diversification in my portfolio because we’re not seeing things going up right now. We’re actually seeing them go down. Now we can also try to pair gains with losses. So if you have other assets that have a loss, it would be great in a year to offset some of those losses.

realize those losses and offset them with some of those gains. These are things that we have to do each and every year. Otherwise, you’re depending on a big loss in one year when you want to decumulate in this particular asset. Here, using RSP deduction strategies can be another big one, as we mentioned. Charitable giving is always helpful, but I would argue a lot of people turn to charitable giving.

when they feel like the amount of tax they’re paying is so great that they would just rather see it going to charity than say the CRA, but it is something worth considering. And then of course, slowly repositioning new capital into safer assets. What we mean by that is potentially not selling the current asset, but rather aggressively investing other capital. So taking part of your salary or other assets that you have,

and aggressively going into other safer assets or more diversified assets. And then finally, if you’re able to do some of those strategies where you’re thinking, I’m gonna tick. And finally, if you think that you’re gonna be holding onto these assets for the long term and really trying to work on other strategies such as leverage strategies,

This is where you can consider high early cash value insurance as an asset that could support long-term planning and dealing with the future capital gains tax that will be realized down the road when you pass on to the next place.

But here’s the truth, once you need to sell or have to sell, this optionality window closes. In Arun’s case, in Aaron’s case, if he had been slowly trimming five to 7 % of his employer’s stock every year over the past decade, then.

his position would still be valuable, but not dangerously concentrated. He’s not gonna have all of his eggs in one basket at this point because he’s diversified, he’s slowly diversified over time. His unrealized gains would then be spread out across that decade and he’d never get hit with that huge tax bill at that tax time because he’s spread it out over smaller increments of time. He would have built the new investment over here in let’s say real estate or private credit or fixed income or.

private equity or corporate class insurance or whatever he’s chosen, but because the gains grew unchecked, we now needed a multi-year plan to just unwind everything safely. So this is what today’s episode is really about.

So now while to this point in the episode, you might be thinking to yourself, you know, maybe you don’t fall into this category. Like maybe you’re an incorporated business owner or maybe you’re a T4 employee that doesn’t have stock options. So you’re going like, this doesn’t really apply to me. Well, I want to make sure we actually address a couple of things here because actually as an incorporated business owner in particular, you’re in the exact same scenario. The only difference is, is you own a hundred percent of the shares of your entire business.

Mm, right.

Hmm.

Right.

Right?

It might be you, maybe it’s you and a partner like John and I. So, you know, I mean, I’ve got 50 % of the of the business and John’s got the other 50 % of the business. However, we’re holding these quote unquote stock options that we’ve owned since they were worth nothing. And now they’re worth whatever they’re worth, which is fine. And our income depends on what we do inside of our businesses. So why this is really important is because there’s a few things going on here. First of all,

You’re fully invested.

You

Like we’ve got a lot of chips on the table and most business owners have the very same problem. So while in your mind you might be thinking, My gosh, that would be scary to have maybe 50 % of your net worth in one publicly traded company like this particular case like Aaron. But ultimately at the end of the day, there’s so many other incorporated business owners that have more than 50 % of their net worth in the business or businesses that they are running. Now this is

good because you have more control of course, but it’s also bad if things don’t go well. If you know somebody south of the border says something about a tariff and suddenly that impacts your business, it’s not only going to impact the value of your business, but it might also impact your actual income from month to month, year to year. So these are things that we have to start thinking about as business owners that capital gains are not only something that we do want to defer them, of course,

Right. Right.

But we also want to make sure that we’re diversified enough so that we aren’t putting all of our eggs into any one basket. And we’re not put in a situation where all of our chips are running on this very, very, you know, me dependent business that we’ve been running.

Yeah, so if you think about the, if I’m a business owner and if you think of Aaron, who’s in a way recommending, like taking some of these strategies we talked about earlier about almost like taking a game plan to say, because you can’t do it once it’s too late, so it’s like let’s incrementally start adjusting.

my investments earlier in my say timeline so that I’m not taking the huge hit at the end of the time. What does it look like for a business? Like if I’m fully invested in my business, like am I selling my business? Am I like taking profits out of my business and putting them in the other business? Like what am I doing here to like mitigate this? Am I just trying to take out small chunks personally and stuffing in the my RSPs? Like what are some of my business move strategies?

Yeah, I think honestly, if you’re in a business where your business is truly saleable and you can find someone who’s willing to take a portion, that would be a fantastic opportunity for a business owner, right? So, you know, maybe you are, you know, in your forties and you’re not ready to walk away from the business completely. However, you’re willing to take some chips off the table. There might be some interest from someone out there to buy into the business.

Maybe that’s going to allow you to have maybe a better lifestyle. That could be one move. The other move could be that maybe private equity is interested in taking a large chunk of your business and then you stick around with 30, 35 % of the ownership. So now you’ve just de-risked yourself in order to still continue working, still get salaried from the same business, still have an impact, but also take some of those chips off the table. Now,

Right. ⁓

For guys like you and I, John, like a lot of the work that you and I do is very consulting-like, and therefore it’s heavily revolved around you and I. So that’s a little different. So if I’m in a position where someone wouldn’t be able to come in and just sort of take over our business and walk away with it, it can be difficult for us to maybe de-risk by taking chips off the table. So what we do, and what we would recommend other business owners like us do, is that you’re trying to find ways to diversify

Hmm.

in your investing and that can be in buckets as we’ve discussed in the past. So whether it’s putting some into the RSP and the tax free savings, but then also keeping a significant portion inside of our corporate structure, likely in a holding company outside of operating companies and then picking assets that will fit your risk tolerance level, not your risk capacity, but your risk tolerance level. for us, we choose to pick safer assets

Mm-hmm.

tax-free assets, things that give us more optionality along the way, while still putting enough of our capital into the public markets, into real estate, and into other growth assets, so that we don’t have all of our chips in, all in on this one business.

Right,

right.

Right, right. then I think the big message here, right, is to just think about what are some small moves I can be doing now to take the risk of the capital gains off the table earlier? So it’s like, I don’t need that huge hit at some point. Can I try to optimize my tax bracket now and go like, let me divest a little here. Let me do this a little here. Let me do this a little here. Because when you think about Aaron and Maya, it’s like with that multi-year plan, you’re really unwinding.

that large capital gains without blowing up your finances at the time you want to retire or time you want to sell or the time you’re going like, hey, I realize that I’m too heavily invested here. I need to like get out because I need to like take some funds and put them over here just so I put eggs over in this basket versus this basket. Well, I don’t want to be doing that all at once. I want to be doing that incrementally. So I think it’s like, I think for us as either G4 employees or business owners,

We think, hey, there’s some great stuff happening. I’ll just jam and I’ll defer, defer, defer. But we need to have that runway. And that’s the big idea here, think, regardless whether you’re a T4 or whether you’re a business owner.

100%. And for those who are like us, we like to keep optionality there. So you’ll hear us talk about it all the time. You know, we have no plans to necessarily sell our capital gains assets in particular, those who are in real estate, you know, it’s a, it’s a much bigger decision if and when you plan to sell a piece of real estate, because you’re kind of ripping off a pretty big bandaid, the longer you hold that property, the bigger the capital gain outside of your primary residence, the bigger the capital gain will be.

So some of the strategies you might consider in the real estate space is potentially doing a vendor take back mortgage where basically you hold the mortgage and that could allow you to essentially spread out that capital gain over five year period that can reduce the tax blow if and when you choose to sell real estate. Now I don’t have plans to sell real estate, but at some point,

Yeah, you’re spreading it out.

I may come to a place where I do sell some real estate and therefore I might have to employ one of those strategies if and when that time comes. Of course, the later we sell, the more optionality we have because maybe our personal income is a little bit lower. Maybe we’re in our retirement years and when you sell an asset, you might choose to use just the income from that asset to fund your lifestyle. Now this is true also for incorporated business owners. You might be able to

You

defer taking a salary or dividend from your company during the year that you plan to decumulate some assets. So these are flexible options that we have in the incorporated business world. However, if you’re a T4 employee, you have less optionality on that front, right? You can’t defer your T4 income unless you’re gonna take a leave of absence, quit your job or move on, right? So these are things that we need to consider. And of course, if you’re like us,

Mm-hmm.

and the goal is to kind of hodl all the way till the end, you want to be thinking about what is the estate going to do with all of those capital gains taxes? The longer I live, I hope I live till 110, but the longer I live, the greater those capital gains taxes are going to be. And therefore that’s why our safe asset bucket is going to be permanent insurance in order to deal with all of those capital gains and more.

as that’s an asset that I can access during my lifetime and is worth more tax free when I do pass on to essentially combat and counteract all of the capital gains taxes. It’s not a state taxes that you have to worry about here in Canada. It’s just the capital gains taxes. And of course, if you have a large RRSP or, or riff, you will be losing about 50 % of that, assuming the bucket is large enough. So

Right.

These are just easy moves we can make to just shift certain portions of our portfolio, whether it’s on the personal side or whether it’s an incorporated business owner, we can shift around certain chunks of our portfolio so that we have more optionality if and when we do choose to sell assets. And then of course, if we hang on and don’t ever need to sell, we have something to deal with that with our estate. So our estate can actually be worth more when we pass than when we were here.

⁓ and a living.

Right, yeah. Now I think a final thought here is that you have, you used the term a few times now, optionality, because I think when you think about it, capital gains are optional until the moment they aren’t. And they aren’t going to be eventually, but you can choose, this is the option, you can choose now or later. And you wanna choose systematically now so that it’s not a bigger chunk later.

Hmm.

And these are some really great thoughts, especially if you’re holding an asset that you don’t think is going to perform well moving forward and you feel that re, you know, restructuring or putting money into different assets might be a better option. It could be worth taking that tax hit now in order to re allocate that capital or considering like we talk about quite a bit leverage strategies as well. Right. So depending on your risk appetite and your tolerance,

Right.

These are things that you can explore along the way. However, you do need to always know that if there’s going to be a capital gain, which is what everybody wants when we do invest, we need to know how and when are we gonna deal with that tax that’s going to go along with it.

Yeah, yeah, well said, well said. If, you know.

If you want to also have a third party, a second opinion on what strategy you should be looking at with your estate planning, your long-term plan, what we always look at is the four components of a healthy financial system. Estate planning, tax optimizations are two of those components for us. Oftentimes we meet with business owners, we meet with high net income individuals to help them plan what that should look like. This is where Aaron

and Maya came from as we help them navigate this scenario. So if you’d like us to do that, you can book a discovery call over at CanadianWellSecrets.com forward slash discovery and we can be helping you navigate this complex situation. Just as a reminder, the content you heard here today is for informational purposes only. You should not get through any of this information as legal tax investment or financial advice.

And Kyle Pierce is a licensed life and accident and sickness insurance agent and the president of corporate wealth management here at Canadian Wealth Secrets.

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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