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Description:
What if paying more tax is actually a sign that your wealth plan is working?
It’s easy to see headlines about ultra-wealthy people paying little or no personal tax and wonder what strategies you’re missing. But for incorporated Canadians, the real goal usually isn’t to eliminate tax at all costs—it’s to understand where tax is being paid, when it’s being deferred, and whether your decisions are actually increasing your long-term net worth. In this episode, Jon Orr and Kyle Pearce unpack why chasing a zero-tax outcome can sometimes lead to worse financial decisions than simply paying the tax and keeping more of what you’ve built.
You’ll discover:
- Why paying little or no personal tax doesn’t necessarily mean no tax was paid—and how corporate taxation changes the picture.
- How reinvesting in a business, RRSP planning, and leveraged investing can shift or defer taxable events rather than make them disappear.
- Why a growing tax bill can be a positive signal of increasing profitability, and how to balance tax optimization with simplicity, risk, and long-term wealth.
Press play now to learn how to think about tax optimization as part of a bigger wealth-building strategy—not as a race to pay zero tax.
Next Steps:
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.
Canadian Wealth Secrets Show Notes Page:
Consider reaching out to Kyle if you’ve been…
- …taking a salary with a goal of stuffing RRSPs;
- …investing inside your corporation without a passive income tax minimization strategy;
- …letting a large sum of liquid assets sit in low interest earning savings accounts;
- …investing corporate dollars into GICs, dividend stocks/funds, or other investments attracting corporate passive income taxes at greater than 50%; or,
- …wondering whether your current corporate wealth management strategy is optimal for your specific situation.
Building long-term wealth in Canada requires more than simply trying to pay the least amount of tax possible. In this episode, the conversation explores Canadian tax strategies, tax planning, wealth management, and wealth optimization through examples such as Elon Musk, while examining how business growth, the Canadian tax system, RRSP optimization, salary vs dividends in Canada, personal vs corporate tax planning, and corporate wealth planning can shape a stronger Canadian wealth plan. For Canadian entrepreneurs and incorporated business owners, smart wealth building strategies in Canada may include tax-efficient investing, leverage investing, corporation investment strategies, business owner tax savings, corporate structure optimization, optimizing RRSP room, capital gains strategy, passive income planning, financial diversification in Canada, and carefully designed investment strategies. These ideas fit within a broader approach to financial independence in Canada and financial freedom Canada, where financial buckets, an investment bucket strategy, retirement planning tools, financial systems for entrepreneurs, and clear financial vision setting can help guide decisions over time. Depending on your goals, that wider plan may also involve an early retirement strategy, modest lifestyle wealth, real estate investing Canada, evaluating real estate vs renting, estate planning Canada, legacy planning Canada, and other approaches to building long-term wealth Canada—while recognizing that effective tax strategies are ultimately about optimizing wealth, managing risk, and making intentional financial decisions rather than simply chasing a zero-tax outcome.
Detailed Episode Summary
Luck, Volume, and Planning for Success
Jon and Kyle discussed the role of luck in business success and how to increase opportunities for success through volume. They believed that luck is not negated by volume but instead increases with each opportunity, much like rolling a dice repeatedly. They also stressed the importance of preparation, hard work, and planning in defining luck and achieving success. They encouraged individuals to take control of their wealth building journey by creating their own volume and investing time in clear planning. Lastly, Kyle mentioned the release of the fourth weekly episode of ‘Secret Sauce’ and asked for feedback on the initiative.
Transcript:
Jon Orr: So let me ask you this. You know, I see, and I’m sure you listening, see this all the time. You know, you see this like headline, or you know, you hear about this. It’s like the rich paid no tax. Like so-and-so, who you know owns this company. It’s like if you look at their tax bill, it’s like they paid zero dollars in tax this year. And you can’t help but wonder, based by wondering being like, how did they do that? Like what what are they doing? Is it just because that they have so much money that they can do? Or they is there special moves that they’re making to put them in a position? Like are they just borrowing everything and therefore they have to, you know, somewhere that gets paid back and then there and therefore like they live their life? Like I don’t know. Like this is the wonder, right? Like you see these things and you’re and you start to compare and you say, what what could I do? Even though I’m not super, super, ultra, ultra I’m not the the point zero zero zero one percent. What could I do to like almost come close to that? You know, what are the what am I missing out on if that person over there has like this scenario and that type of moves? Like give me the moves. What do you think, Kyle? Like let’s talk about this. What are they doing?
Kyle Pearce: Yeah, well, yeah, well, first and foremost, like I think it’s really important to recognize like we are a Canadian audience is a Canadian podcast. We’ll probably notice like most of the people that are referred to as paying no tax are US like in the US, right? You hear it about, you know, Donald Trump or Elon Musk or, you know, Bezos or like these people that are paying no tax. So there is a different tax system happening there and I don’t want to you know, get too down into the weeds around some of the nuances and differences.
But one of the big pieces that I think is really important to recognize is like, when you think about these people and those who listen to this podcast, 95% of them are incorporated or have complex tax situations. That’s who we tend to speak to in these episodes. The reality is, is that when I’m gonna pick Elon Musk, pays $0 in personal tax. The real question is, is like, in order to do so, there had to be something going on there where he wasn’t taking a large salary. And for many years when he was building up Tesla, he wasn’t taking salary, like the guy was sleeping on the factory floor. And the reality is, Elon Musk must came from wealth. So the reality is, is like a lot of these individuals don’t need to pay themselves an income. And they have more control over that income because a lot of times they work for the companies that they own.
Just like we do here in Canada where you and I, John, can decide whether we want to take a T4 income or whether we want to take dividends or whether we want to take nothing. Now, here in Canada, we always say to our incorporated business owners, you want to at least be utilizing the lower tax brackets because you don’t get them back. So said another way, it’s like you should be taking something out even if you were, you know, given an inheritance this year of a large sum of money, still makes sense to take some money out of that corporation and try to at least net out the small business deduction rate of nine to 12 ish percent, right? Like, you might as well do that. That’s like getting money and freeing it from the corporation.
If I look at Elon Musk, Elon Musk, owns these companies, they then go public and so forth. And then he owns all these shares and he can choose whether he wants to sell those shares to generate income or hold those shares. And then we introduce this idea of leverage, right? Exactly.
Jon Orr: Or leverage against those shares. Right.
Kyle Pearce: And it’s like, and then you could utilize leverage and you can do these types of things. But the part that I think is really important for us not to forget is that Tesla does pay tax on net operating income. Now, whether Tesla makes a profit or not, I don’t know. I actually, you know, don’t follow Tesla that closely to know whether they are profitable or not at this stage. But any profit shown in that company, they would pay tax.
So let’s think of it from our context and the people listening to this show. Most people have CCPCs which is like Canadian controlled private corporations. If you own your corporation, you are going to have to pay tax if your company is profitable. And we’ve had calls with entrepreneurs that are like, how do I like show less income? I’m like, spend more money in the business. That
Jon Orr: Right. It’s it’s a simple formula.
Kyle Pearce: it’s simple, but it’s is it smart formula? I personally don’t think so. I don’t think spending money in the business just to spend the money is a great idea. You can feel great, you know, I’ve accomplished the goal of not, you know, paying any tax, but you also have nothing left to show for it.
Now, the reality is, if you’re spending money to grow the business, that’s one thing, right? That’s great. That’s what a lot of companies do. The problem is, is that you’re creating a bigger tax problem for the company. If you’re investing it correctly, like wisely to grow the business and grow the revenues and minimize expenses over the long term and become profitable, the more profitable we become, the more taxes we’re going to have to pay in the corporation.
So even though John, you and I, we could have extremely profitable corporations. And at a personal level, you and I could choose to take zero income from our businesses. Our companies are still paying a lot of tax, which in turn means I’ve paid tax, even though it’s not showing up on my personal T4, right? Or not on my personal T4, my personal T1 general, right? So on my income tax, I can show that I paid zero tax. But the reality is, is that in turn, I have paid some tax. I paid a low tax amount in the corporation on the first 500,000, but then any dollar above the 500,000, I’m paying around 25 ish percent. And that varies based on province. You’re still paying tax.
And therefore, we can decide on how we want to optimize it. But I think to me, it’s like the big piece that we don’t want to get too wrapped up in is like I don’t think you ever want to be in a world where you truly pay $0 in tax across your company. And personally, like to me, it means something’s not going well. You’re going to have to pay some tax for us. How do we pay the least amount of tax for the longest time possible while we’re not wasting money at the same time? Like to me, that’s the magic formula that we’re trying to work out for ourselves. Selfishly, but then also for all of the different clients in the Canadian Wealth Secrets community that we work
Jon Orr: Yeah. So when you basically what we’re you’re saying is that let’s say the corporation earns money, an expense of that could be to your salary, and if you carefully structure your salary into your personal hands and that salary in a way offsets your expenses at home, whether you have say, you know, you’re gonna get that salary, that salary is taxable income unless you can dump it all into a RRSP or you know, you can write it off in some respect it’s because you have say investment in investment expenses. Like you could play around with that optimization, but in a way if you are say doing either of those things, you’re really deferring. So you’re you’re pushing the can down because the RSP you’re pushing the can down. if you’re you got you got, you know, investment expenses, you own property or like you’re really pushing the can down to a taxable event sometimes.
On the on the corporate side, you’re saying the same type of thing, I think. It’s like you could be making money operationally, which means you’re you have profit. And if you have profit, then you’re generate you have to pay tax on that profit. But you could kick the can down the line by saying, I actually don’t have profit because I’ve reinvested in the business and I’ve bought this asset or I have this expense, and we keep expensing until we have a profit of zero because I’m just trying to grow the crap out of this business. But
Kyle Pearce: Right.
Jon Orr: I’m really hoping down the line that there is a massive payoff for that. But the massive payoff is pushing the tax deferral event down the line because you own shares in this. And then what what do I do? How do I get the money out personally at that point? How do I account for that? And and I guess it’s like, well, why wouldn’t I take both of those approaches and then try to mitigate the down the line approach that’s on both ends? And how and and if if so, is that what the rich is doing?
Kyle Pearce: Right, exactly, exactly. And I would say, you know, this is the funny or the interesting part about this type of work is like, you know, by, by trying to minimize tax and grow your business, grow your worth, grow all of these things. Like if growth is what you have in store in mind for yourself, you’re actually at the same time creating a bigger tax problem for yourself. So in the meantime, you’re like, hey, it’d be great if I don’t have to pay as much tax and I’m reinvesting in the business. I don’t take a lot for lifestyle spending. Like I’m doing all of these different things. That’s fantastic. But in the end, the reality is, what everybody should hope for is a massive tax problem, right? Cause like, if you have a massive tax problem, that is a good problem to have.
Now on that end, what we can do is we can, you know, employ different strategies along the way to try to figure out, okay, if I want to try to optimize my tax situation, there are things we can do and we use leveraged investing strategies for this very purpose. So for those with large RRSPs, how many times people hop on calls and they go, I think my RSP is too big. And I’m like, okay, let’s have a look at it. And it’s like, at the end of the day, to me, an RSP is never too big, right? It’s like the tax bill will be really big on thing at the end and yeah, maybe you have OAS clawback because you you’re taking more than $95,000 a year by force through your RIFF. Like all of these things happen. These are good problems to have.
So it’s like, okay, if I’m 50 and you think your RSP is already, you know, big enough, first of all, we should model it. So we’ll use our software and let’s model this out and see what really happens based on your current spending, what you anticipate to earn in your business or in your T4 job or whatever it is, we’ll model all of that out to see whether, first of all, whether you just have this hunch and whether it’s real or not. And then if it is real, what a great opportunity for us to now look and say, you know, you’ve got that, you know, that paid off property sitting right there, that primary mortgage. Imagine if we could borrow against that, which is risk. Remember, there’s some risk associated here, but we borrow against it to invest in XYZ asset class, whatever they feel comfortable, confident investing in, or maybe they invest with us through our team, whatever they choose to do. And then now we get to write off that interest.
And a lot of people are like, okay, that’s great. I love the tax write-off, you know, the write-off idea. But if we can get that borrowed amount large enough for a long enough period of time, the amount that we can write off an interest could make a significant difference in terms of what we could actually take out of our RRSP or our RRIF, which is what it will convert into by age 72 latest, we can then offset some of that money coming out and we’ve grown our net worth at the very same time because now we have a non-registered bucket of investments that are growing as well.
Now for some people to go like, that sounds too complex. Like, you know, I get sweaty thinking about it. And if that’s the case, that’s totally fine. But that’s a choice that you’re making in order to address a potential tax issue down the road, a good problem to have, or you might do what a lot of people do. And here’s the crazy part. As you become more and more wealthy, what we notice, we’ve noticed this about ourselves, right? We’ve noticed that we’ve transitioned over the years that as we become more and more and more financially stable, the less work or effort we want to put into some of our optimization plans, which is kind of crazy.
Like what we find is people that are starting the journey want to optimize to like the nearest hundredth of a decimal point, right? They want to make sure everything’s optimized, which makes a ton of sense. You want to make sure you’re optimizing because you’re just getting going. Those dollars mean so much to you. But as your net worth grows, as your incomes grow, maybe as your business grows, what you start to recognize is that some of these savings relative to the whole, not the absolute number, but relative to the whole actually don’t mean as much to you anymore. And that’s completely fine. These are some of the choices that we have to make.
And here’s the interesting part about wealth planning is that when we start a wealth plan, and where we end in a wealth plan, remember ending is way down the road decades down the road. You might be in very different places, both from a mindset piece of mind and then also from an actual piece of mind because everything’s based on projections and those projections are conservative in nature. Like we want to make sure that the plan will work. We don’t want to ever put ourselves in a place where it isn’t going to work.
So I think the purpose or the, you know, sort of goal. The big idea from this episode is that yes, tax optimization is an important aspect of your plan that we want to understand. And then we want to make some choices based on where we are now. And those choices may change as we move on down the road. So again, at first you might be very, very ambitious to try and, you know, mold things and to optimize things along the way. As we move down the road, things may and probably will change for you.
So for example, I used to be a massive real estate investor. I don’t really want to go anywhere near real real estate myself. It’s not just because the market’s soft or anything. That’s a great time to actually get in is when the market is soft. It’s that I’m actually just getting a lot less ambitious in order to deal with the management. We have a property manager that does all of the dirty work, but we get emails about it every single day. And it’s just something that I’m not loving as much anymore. So what does that have me doing? It has me looking at other opportunities. It has me looking at more liquid assets, things that don’t have tenants, things that don’t trash the unit when they’re done with it, private equity opportunities, things to diversify the whole portfolio.
And the reality is, that if you are doing well and you are becoming more and more successful, more and more wealthy, those tax dollars that you end up paying become less painful. The number gets larger, but they become less painful relative to the whole. And I’ll kind of end with a quote I had from a client. They said, I had to pay an extra $200,000 in corporate taxes is what this particular client had said to me. And I said, well, congratulations. And they had said like, why, why is that a good thing? And I said, well, because here in Ontario, if you and I already knew they were above, you know, 500,000. So, you know, they were earning more and more and more money. I know that if they paid $200,000, that was 25% of the total amount of net operating income that they had generated extra in addition to what they had done previously.
I said, well, congratulations, you got to keep an extra 600,000 in the corporation. That’s a massive win, right? 75% is 600,000, 25% is 200,000. It was $800,000 of net operating income that they had generated this year that they did not generate in years past. That is a massive win. So even though the absolute number of 200,000 had to get paid in taxes, I said you have one of two options here, you either pay the tax and move on. Or you find a way to spend that $800,000 on growing your business so that you can make yourself an even larger tax bill next year. But the thing we wouldn’t advocate is just spending this money for the sake of spending it because guess what that does to you? It enter your family, it just drains your net worth your net worth goes down when we unnecessarily just expense things out.
So my friends, if this has been a helpful conversation for you to rethink some of your wealth planning and strategies moving forward, again, we wanna optimize, we want to pay as little tax as legally possible. Maybe we want to explore leveraged opportunities, leveraged investing opportunities. Maybe there’s some other opportunities for you that are sitting right in front of your nose. If you’re curious, you should head on over to our website and you can find that link around this video or around this podcast. Go ahead and click that button and sign up for a strategy call. We are an education first business where we teach you and we are strategically licensed to help you with implementing some or all of those strategies along the way. However, there’s never an obligation and again, the call is always free. So if that sounds like you, you should head on over to our website by clicking that link in the description and hopefully we’ll be on a call with you real soon.
And just as a reminder, this content was created for informational purposes only. You should not construe any such information or other material as legal, tax, investment, financial, accounting or other advice. And I am Kyle Pearce. I’m a life license and accident and sickness insurance advisor. I’m graduate of the Canadian Securities course and I am the president of corporate wealth management here at Canadian Wealth Secrets. Canadian Wealth Secrets is an education first company whose team members and our partners are strategically licensed to assist with asset management, insurance strategies, and private equity opportunities.
