Episode 84: Jailbreak Your Retained Earnings and Minimize Expenses Related to Income Tax & Capital Gains Inclusion Rate Hikes

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Are your retained earnings trapped inside your corporate structure? 

Wondering how you can jailbreak your retained earnings without gifting 50% of your net operating income to the Canadian Revenue Agency?

In this episode of the Canadian Wealth Secrets podcast, we delve into the intricate world of corporate tax planning strategies and how savvy business owners can optimize their retained earnings and investments while navigating the increase in capital gains inclusion rate and utilizing tax efficient structures.

This episode addresses the pressing issue of how business owners can maximize their retained earnings within a corporation while planning for retirement. With personal income taxes and capital gains posing significant hurdles, it’s essential to explore innovative solutions, such as using corporate-owned life insurance policies and efficient investment strategies. This discussion aims to equip you with the knowledge to make informed decisions and secure your financial future.

You’ll learn: 

• Tax Optimization Techniques: Learn how to minimize tax burdens and efficiently manage retained earnings through strategic use of corporate structures and permanent life insurance policies.
• Investment Insights: Discover the pros and cons of different investment strategies tailored for business owners, including how to balance active and passive income within a corporate framework.
• Leveraging Corporate Assets: Understand how to use corporate assets as collateral for loans, enhancing compliance and efficiency in your financial planning.

Unlock the secrets to smarter corporate tax planning and investment strategies by listening to this episode now!

Resources:

• Like this short, “Wealth Secrets” Episode? Tell us in your rating and review on Apple Podcasts. 
• Dig into our Ultimate Investment Book List
• 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!
• 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.  

Looking for a new mortgage, renewal, refinance, or HELOC? Reach out to Jon to share some options.

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 corporate passive income taxes at greater than 50%; or,
• …wondering whether your current corporate wealth management strategy is optimal for your specific situation.

By hopping on a discovery call with Kyle, he will review your specific personal and corporate financial situation in order to determine if there are some quick wins available for you to minimize taxes personally or corporately, provide ideas for how you can increase your personal cash flow, and ensure that the net worth of your estate continues to grow in tandem.

This episode helps entrepreneurs and incorporated business owners to determine where they should be investing their retained earnings – inside the corporation or outside – in order to accumulate a high net worth over time and a low Canadian income tax stream of retirement income later. We will explore Registered Retirement Savings Plans (RRSP), Individual Pension Plans (IPP), infinite banking like moves with participating whole life insurance for tax efficient income and more.

Watch Now!

Detailed Episode Summary 

Corporate Tax System and Retirement Planning

Kyle explained the incentives of the corporate tax system and how it can be advantageous for companies to earn income inside a corporation. He highlighted that while personal income can be written off, a significant amount of money may be given away in expenses. The biggest challenge, he pointed out, is that many business owners end up being taxed heavily on their retained earnings. Kyle suggested a strategy using permanent life insurance to save on taxes both now and in the future, which he planned to discuss in further detail with Jon.

Managing Capital Gains and Corporate Structures

Kyle and Jon discussed the challenges faced by individuals when managing capital gains and corporate structures. Jon emphasized the issue of tax burden and the dilemma of how to distribute retained earnings from a corporation, especially for sole owners or those with a single partner. They explored potential strategies, including the use of permanent life insurance, but Jon expressed concerns about the logistics and planning required. The goal is to minimize tax burden and create a structured plan for withdrawing funds over time.

Discussing Investment Strategies for Business Owners

Kyle and Jon discussed the benefits and drawbacks of different investment strategies for business owners. Kyle suggested that incorporation through an RSP might not be the best choice for all, especially for those already having a pension. He argued that taking money out of a corporation as a salary, which opens up space in the RSP, could be a better option. However, this could lead to a loss of capital gains exemptions. Kyle also highlighted the tax advantages of earning active income within a corporate structure, up to a certain limit, and suggested considering different types of assets for investment, such as growth stocks or real estate, to balance the tax burden between capital gains and passive income.

Managing Capital Gains and Tax-Efficient Extraction Strategies

Kyle and Jon discussed strategies for managing and tax-efficiently extracting capital gains from a company. Kyle proposed a method where actively earned income could be invested and withdrawn in a tax-efficient manner, while also addressing the issue of retained earnings. Jon suggested creating a plan to gradually shift a policy, with some of the retained earnings going into the policy premiums each year, increasing the cash value. The policy would then pay out the net death benefit to shareholders tax-free upon Kyle’s passing.

Discussing Corporate-Owned Life Insurance Policies

Jon and Kyle discussed the financial implications of using a corporate-owned asset as a dividend-paying whole life insurance policy. Jon showed interest in understanding how this policy could be leveraged, and Kyle explained that they could use the company’s assets to buy more assets, increasing the policy’s cash value and creating a substantial death benefit for future heirs. Kyle also highlighted that banks prefer lending against such policies due to their safety and the ease of appraisal, as the cash value is exact and easily retrieved if necessary.

Leveraging Corporate Assets for Compliance, Efficiency

Kyle and Jon discussed strategies to leverage corporate assets in a compliant and tax-efficient manner. Kyle explained how to use corporate assets as collateral to secure loans, and the potential to borrow against specific corporate assets. They discussed the importance of creating a clear plan and seeking independent tax advice to ensure compliance and optimize tax efficiency. Jon expressed interest in using these strategies to manage his own retained earnings, and Kyle encouraged him to reach out for further discussions. They also emphasized that this content is for informational purposes only and should not be construed as legal, tax, investment, or financial advice.

Transcript:

00:00:00:04 – 00:00:26:18
Jon Orr
Is your retained earnings trapped inside your corporate structure? How can you jailbreak your retained earnings and avoid essentially gifting 50% of those earnings to the Canadian Revenue Agency? In this episode, we are going to dive into some structures and tax efficient strategies so you can retain more of those hard earned dollars and use it so that you can reinvest in the business or build your wealth.

00:00:26:20 – 00:00:39:04
Jon Orr
Here we go.

00:00:39:06 – 00:00:44:07
Kyle Pearce
Welcome to the Canadian Wealth Secrets Podcast with Kyle Pierce and John Oliver.

00:00:44:07 – 00:00:58:02
Jon Orr
We are recovering high school mathematics teachers and education consultants whose entrepreneurial spirit led us to begin multiple businesses in real estate investing, digital courses and coaching and consulting after the bell rang at dismissal time.

00:00:58:07 – 00:01:26:07
Kyle Pearce
Fast forward a decade later where we’ve grown our portfolios and our time freedom to the point where we can now help entrepreneurs, business owners and investors to grow their wealth into a legacy that lasts for generations through hidden investment and tax secrets. Your financial advisors won’t believe our true. All right. They’re Canadian wealth, secret seekers. Today we’re going to be digging into and we’re going to try to keep this short.

00:01:26:07 – 00:01:27:14
Kyle Pearce
I know, John, you and I.

00:01:27:16 – 00:01:29:01
Jon Orr
Don’t think you’ve ever done.

00:01:29:03 – 00:02:02:17
Kyle Pearce
I know. I don’t think it’s ever happened. It were notorious for getting a little bit deeper than we intended to, but we wanted to chat about something that we’ve been hearing a lot from both those who listen to the podcast, but also others, specifically business owners and investors who reach out to us on a regular basis. I have calls every single day and we chat about different strategies, specifically around strategies that help us to essentially grow that financial foundation, but then also to do things in a more tax efficient way.

00:02:02:18 – 00:02:34:02
Kyle Pearce
So today we’re going to talk about something that we get from specifically those who are incorporated business owners or investors, those who have companies. And we advocate this idea of building wealth machines out of our companies, right? Instead of, say, draining money out, which is kind of what our tax system is sort of structured to do, it’s sort of designed such that, hey, there’s incentive at the beginning, I like to call it the bait and switch right at the beginning of the journey.

00:02:34:02 – 00:02:56:08
Kyle Pearce
When you’re earning active income inside a corporation, it’s like, Man, that 12.2% here in Ontario and slightly less in different provinces around the country, that 12.2% on the first $500,000 of profit is like, Wow, that’s awesome. I’m going to open up a company, right? Because that makes sense, especially in the growth stage where I can write stuff up.

00:02:56:08 – 00:03:16:03
Kyle Pearce
I mean, you could write stuff off personally, but remember at the personal level, if I get $500,000 of income as a sole proprietor and I’m not incorporated, I’m going to essentially gift away around 50% of that, right? So I’m going to have to have a lot of expenses to make the profit much lower and really to get it down to 12.2%.

00:03:16:03 – 00:03:44:04
Kyle Pearce
You’re gifting a lot of it in expenses, right? So you’re just letting money fly out the door. So it totally makes sense to get that money earned inside the corporation actively. But here’s the big challenge, and this is probably the biggest challenge that we help business owners to solve here at Canadian While Secrets is they come to us and they say, I’ve earned $500,000 in net operating income or in some cases it’s a million, or maybe it’s more.

00:03:44:06 – 00:04:14:05
Kyle Pearce
Or you might have the case where someone says, Listen, I don’t earn 500,000 every single year in net operating income. But over the years I have accumulated retained earnings of, say, $1,000,000. Right. And in a lot of cases, John, what people end up doing with these retained earnings is they either take them all out and then they get hammered in tax rate, they pay that 40% in dividends or you can take salaries and try to be a little more strategic, some salary, some dividends.

00:04:14:05 – 00:04:49:08
Kyle Pearce
We’ve got episodes all about that that you can go back to talking about should you pay yourself a salary or dividend back on episode 66. But like today, let’s talk about if we don’t want to get hurt by that tax on the personal level by just bringing the money out, I’ve got this money in my corporation and we’ve said it on many episodes before around how permanent life insurance provides an opportunity for business owners specifically to really save on the taxes that they’re going to pay, both.

00:04:49:08 – 00:05:13:03
Kyle Pearce
Now but also in the future for their estate. So that’s kind of where we’re going to frame this conversation here today and we’re going to dig in to what do we do? And if we start to consider permanent insurance as a strategy inside of our corporate structure, like how big should that policy be? Like, should I be putting all of my assets inside of a policy?

00:05:13:03 – 00:05:31:19
Kyle Pearce
Should I be taking capital gains and putting them in? Like, what should I be doing? Because we get this question quite a bit and today we want to set some How does it work? Yeah, we want to set some bumpers, right, for people to be considering when they look at their own corporate structure and they look at their balance sheet and sort of go, okay, how do I do this better?

00:05:31:21 – 00:05:56:14
Jon Orr
Yeah, something that popped into my mind and I know that that’s always been hanging around, but when you it’s the same issue on the personal level, when you’ve been stuffing money into the RRSP and you’re like, Now I’m at a place where I’m like, I want to get that out. And it’s like, now I’m in actually a higher tax bracket than I was, and how do I get that out without getting this huge tax burden?

00:05:56:14 – 00:06:16:05
Jon Orr
It’s like the same with like this retainer earnings. It’s in there, it’s been growing in there. And now I’m like, okay, well, what do I do with it? Do I continue to keep it growing in there? And I’ll continually pull some out, add an appropriate tax amount to keep my lifestyle going. But the good problem to have is like it’s going to get bigger.

00:06:16:07 – 00:06:35:07
Jon Orr
So it’s like eventually it’s got to come out of there somewhere or I’m selling this business with these assets included, or am I going to pull this out personally as a shareholder? AM I going to all of a sudden do some sort of distribution? Like there are different things you could be doing with the retained earnings. But but you’re right, most people are coming and going.

00:06:35:13 – 00:06:58:07
Jon Orr
I have opened a corporation. It’s either like I’m the owner, sole owner, or I have one other partner or my spouse is the partner or shareholder in that corporation. But now I want to bring that money out or try to like what is my strategy to get it out and eventually go live on it because it’s like, could I just start withdrawing some every year and then slowly deplete it?

00:06:58:13 – 00:07:16:07
Jon Orr
But then what happens if I can’t deplete it fast enough and I don’t want to gift it all away to the government? What are some of the strategies that we’re trying to employ? So when you say like this is where the turn to saying permanent life insurance is a tool for us to kind of go, we can minimize that.

00:07:16:07 – 00:07:33:16
Jon Orr
But it’s like part of that is like, I’m going to own the life insurance in the corporation, but it’s all still up in there. So I think lots of questions around like how much should I be doing, What is the minimum, what’s the maximum? But then I think the other question still is going, well, how do I use it?

00:07:33:18 – 00:07:53:13
Jon Orr
Because I think business owners are like, I’m using this cash or whatever these assets that are sitting in the corporation to grow. But like but if the main question still for these people is how do I get it out of there? How do we structure that? And what is the my mind always goes to like the logistics, like, tell me what that looks like.

00:07:53:15 – 00:08:10:05
Jon Orr
Do I take the money out of this account and it comes over here? Or like, what are some of these moves that we make that makes me feel like, okay, I’ve got a plan moving forward. I’m going to make my spreadsheet that’s going to show that. And year ten, I’m going to be withdrawing this from that account, and that’s going to be able to continually pay my.

00:08:10:05 – 00:08:26:21
Kyle Pearce
Bills 100%. Yeah. Just to speak to the RSP, you know, I know we talk about it for like for business owners. Now, if you’re not incorporated, you’re a T4 employee. Again, we’ve said it time and time again. An RSP is a really good move to a point. There’s always a point at which maybe the RSP gets too big.

00:08:26:21 – 00:08:47:19
Kyle Pearce
But let’s be honest, for the vast majority of Canadians, they don’t get to that place if they’re a T4 employee. Right? It might be something you consider if you already have a pension that maybe you’re going a little less into your RSP. But let’s be honest, you also don’t have as much room because your RSP space is taken by your pension contributions, Right.

00:08:47:19 – 00:09:17:07
Kyle Pearce
That you’re making throughout your life. So in that regard, we’re talking specifically about business owners and why we don’t promote the idea. It’s not bad necessarily to take money out of your corporation as a salary, which opens up room in the RSP and then you put it in there and then you get this tax kickback. I would much rather first of all, if I’m growing assets inside of my RSP, I’m probably going to be picking more long term type growth assets in there.

00:09:17:12 – 00:09:40:20
Kyle Pearce
You’re actually losing some of the capital gains exemptions or the capital gains inclusion rate. So right now it’s still 5050. In September, the government’s going to sort of decide whether this June 25th date is actually going to go forward with the two thirds inclusion and so forth. But in your RSP, you’re getting 100% inclusion rate. Now, the tax is deferred, but so is a capital gain.

00:09:40:20 – 00:10:14:18
Kyle Pearce
A capital gain is deferred until you sell it. So I would much rather see that capital gain growth asset happening inside my company because I actually am going to get essentially the same result unless you are in that under $250,000 exemption. On the personal level right now, there’s a lot of acrobatics that have to happen for you to pull the money out of the corporation and then really analyze like, can I make this work where I’m still under the personal amount of $250,000 for a lot of business owners, it’s probably not you.

00:10:14:18 – 00:10:35:21
Kyle Pearce
So you’re going to be dealing with a higher inclusion rate regardless, assuming this all goes through. So what I want to do in my company, though, is I want to think about the different types of income that my company actually is producing because really you’ve got kind of like three different options here. Like you have active income, which is that’s the big one for us.

00:10:35:21 – 00:10:58:23
Kyle Pearce
When we earn active income inside a corporate structure, you are getting a tax incentive to earn that active income up to the first 500,000. You pay that 12.2 here in Ontario. Again, very similar rates, slightly lower in other provinces. As you get above 500,000, that number goes up, but still not as much as you’d be paying if you were a sole proprietor.

00:10:58:23 – 00:11:24:03
Kyle Pearce
26 and a half percent right. So it’s still better to be earning that money. But here’s the challenge. The challenge is, is that that money that you actually earn as profit inside the company and you do not take out as a salary or dividend is now retained earnings. Right. So you now have access money in this company and you really have essentially two options.

00:11:24:03 – 00:11:46:22
Kyle Pearce
You can buy growth assets that produce a capital gain or you can buy passive income type assets that produce some sort of interest or passive income. The passive income is what hammers you, right? You get 50%, 50 plus percent in passive income taxes. Course, when you take that money out after, you’re going to get a bit of a credit and those sorts of things.

00:11:46:22 – 00:12:10:22
Kyle Pearce
So again, not really pushing on this passive income part, but if I throw it into a capital gain asset, so I buy real estate or I buy growth stocks or just the index and so forth that isn’t focused on getting dividends, I can grow that capital gain. And of course there’s going to be a 50 or two thirds inclusion depending on what happens here.

00:12:10:22 – 00:12:31:08
Kyle Pearce
Over the next little while, I’m going to have that inclusion rate. But the difference is, is that it’s going to happen essentially the same way, whether it’s corporately or personally, unless it’s under that $250,000 mark. Great. So you can be strategic about it. But the problem is, when I pull this money out, I’m getting hammered at the front.

00:12:31:10 – 00:12:59:07
Kyle Pearce
So what we would rather do is we’d rather look at this and go, okay, I’ve got some problems. The money I earn in the company actively is sort of stuck in here and I can invest it. But before we invest it, we want to find a way that we can allow for a nice opportunity for that actively earned income to come out in a more tax efficient manner, both while I’m alive and when I move on.

00:12:59:08 – 00:13:19:08
Kyle Pearce
Because the reality is I want to give it like a scenario here. Okay, You have $1,000,000 of retained earnings. You earned it actively. Right? And let’s say it was all at the lower tax rate. So it was earned over a few years. Those are 88 cent dollars in that company. I could purchase real estate or I could purchase growth stocks.

00:13:19:08 – 00:13:37:20
Kyle Pearce
I can do all of these things in here. So I’m using this cheaper dollar. I can grow that capital gain. But the problem is, is let’s say I take that million and then I turn it into 2 million. I have $1,000,000 of retained earnings that still has to come out of this corporation at some point in the future.

00:13:37:22 – 00:14:18:10
Kyle Pearce
Right. I don’t ever have to take it out, but then it’s stuck in there. But then I also have this million dollar capital gain. I can pay the capital gains taxes and then take some of that money out tax free. That’s a good thing. But I still can’t solve this $1 million retained earnings issue. So what we want to share with our business owners here in this particular episode is that if I focus at minimum on getting my retained earnings over time, whether it’s year over year or whether it’s trying to deal with a large amount of retained earnings all at once, what we can do is we can actually structure it into a permanent

00:14:18:10 – 00:14:49:16
Kyle Pearce
policy which we know will pay out the net death benefit, will pay out to the shareholders tax free down the road. That’s a bonus for sure. I can essentially take that million and it’ll actually be much more than a million. It’ll come out tax free instead of turning the million dollars into 600,000. Let’s say if I take it out and I have the opportunity to leverage against that bucket in the in term to buy more capital gain type generating assets, be it real estate.

00:14:49:18 – 00:15:15:10
Kyle Pearce
And now, mind you, real estate will produce a passive income. But with all the expenses that are associated, you can design it such that you’re minimizing the passive income taxes. And actually, let’s be honest, there’s an opportunity for us to funnel some of that passive income into policies and use leverage strategies to create an additional expense to reduce that passive income tax over time.

00:15:15:12 – 00:15:41:22
Jon Orr
So when I’m thinking about, say, some of these logistics and when I think about that million, let’s say we create a plan in a schedule to eventually shift in a way that retained earnings into a policy. So you’re paying premium every year and some of that million goes into to the premiums of that policy. The cash value of that policy is increasing the way that you just described.

00:15:41:22 – 00:16:09:03
Jon Orr
That is the only way that I can pass that on is when I die. And I think that’s where people like start to go like, but don’t I want to have that just in case? So there is a policy there and therefore cash value, but it’s still inside the Corp. The Corp still owns this asset that has grown more than the million and because of the cash value is going to increase, it is dividend paying.

00:16:09:05 – 00:16:29:08
Jon Orr
Let’s say it’s a dividend paying whole life insurance policy. Then it’s like, okay, if I die, the death benefit is going to be passed tax free to the shareholders. I get that. That’s great. All of a sudden that billion is outside the Corp now and it’s in the shareholders hands. But what happens if I wanted to use it while it’s still there?

00:16:29:10 – 00:16:48:01
Kyle Pearce
I love it. I love it. In some cases. What we have, John, is this opportunity where we use leverage, show us being real estate guys. Leverage is something that isn’t a scary thing to us. Now, for those who have never leveraged anything or they’re still sort of stuck in this idea that, Hey, I got to pay down the mortgage and have zero debt.

00:16:48:03 – 00:17:13:04
Kyle Pearce
Totally get there’s an emotional side to that that people have to work on for mindset. But imagine this world where over time, as we build this policy, which is a corporate owned asset, that policy is owned by the company. But you know what’s really interesting, John, is that you own the company. So when I want to leverage against that policy, there’s different ways that we can do it.

00:17:13:04 – 00:17:35:13
Kyle Pearce
But one of I’ll call it the easiest ways so that I could fund this policy and this is what, you know, you, myself and Matt have been doing for a little while now is we’ve been building these policies we leverage in the company to buy more assets, which creates more tax problem on a capital gains perspective. But now there’s this big death benefit that’s going to help the heirs of this estate down the road.

00:17:35:13 – 00:17:58:19
Kyle Pearce
So that’s a benefit, not the real reason why I do that. But what I do know is that my balance sheet on that company shows that the asset in the company is growing and banks love that asset because it’s such a safe asset, Like imagine a world, usually what a bank says when they want to borrow against real estate, they say, Hey, I need an appraisal, right?

00:17:58:20 – 00:18:21:04
Kyle Pearce
And they know the appraisal is kind of like, well, it’s kind of like based on comparisons and it or it’s based on the income approach. The reality is an appraisal is just an opinion based on some methods, whereas with a policy, it’s like you get a daily appraisal and it’s exact because we always know exactly what the cash value of that policy’s worth.

00:18:21:06 – 00:18:40:13
Kyle Pearce
And banks know this and banks love lending against it. Because you know what happens, John? If you don’t pay, the bank says, give me the policy. Right? So just give me the policy because I know what’s worth. And that’s pretty easy. They don’t have to foreclose. They don’t have to like, list it. They don’t have expenses, they don’t have this timeline, none of that stuff.

00:18:40:13 – 00:19:07:05
Kyle Pearce
It’s very, very easy and simple. So from the easiest standpoint, while we don’t always use this method, we have more complex methods which allow you to leverage directly against that corporate asset and do it in a compliant fashion. But you think about this, John, you go, Hey, I go to my bank or any bank really, and you say, Here’s all my personal assets, including the shares of these companies that I have, or a company or whatever it might be.

00:19:07:07 – 00:19:28:07
Kyle Pearce
The bank goes, Wow, okay, you’ve got a good thing going on. And then you say, Hey, will you allow me to leverage? Would you give me a line of credit or would you give me a loan for X amount of dollars? Right. And they will usually say, yes, look at all of these things. And you can do that in secured against all your personal assets, which is one option.

00:19:28:07 – 00:19:48:05
Kyle Pearce
That’s the easiest option because then there’s no nuance from a C.R.A. perspective like, Hey, these are my assets and the banks willing to lend it to me. Well, what I can also do is I can go a step further and I can actually go, you know what? This one asset inside this corporation over here, this policy, it’s worth this much today and it’s going to be worth more tomorrow and it’s going to be worth more next year.

00:19:48:05 – 00:20:16:02
Kyle Pearce
And I’m going to continue to fund it. The bank will actually allow you to collateralize that particular policy. Now, there is a little bit of acrobatics required from a C.R.A. perspective because we have to make sure there’s no shareholder benefit here. So we have a process that we use to make sure it’s compliant. We send people away for an independent tax opinion so that you’re protected and you’ve done your due diligence and all those wonderful things, but you can actually secured against that thing.

00:20:16:08 – 00:20:38:21
Kyle Pearce
And then I have this bucket of money that even though quote unquote it’s a loan that I’m borrowing from the bank, the reality is, is that I’m borrowing it tax free and at an interest rate that I’m agreeing to with the bank. Right. So if it’s prime right now, it’d be 6.95%. So 6.95%. A lot of people go, geez, that’s like way too high.

00:20:38:23 – 00:20:56:11
Kyle Pearce
That’s way too high. Well, guess what’s higher, 39% dividend tax, right. So I’m able to use this. Now, of course, you want to make sure that your plan is clear. You want to make sure that you know exactly what you’re doing and that you’re not just guessing how much money you’re going to start leveraging and how often you’re going to do it and so forth.

00:20:56:11 – 00:21:30:13
Kyle Pearce
You have to have a plan. And that’s what we do with our business owners. We go, okay, how do we take this retained earnings? How do we get as much of your retained earnings in a safe manner into this asset that you now know? Those retained earnings, whether you choose to use a leverage strategy now five years from now, 15 years from now, when you’re in your quote unquote financial freedom years or when you pass on, you know that you’ve created an exit plan for those retained earnings in a much more tax efficient way.

00:21:30:15 – 00:22:03:12
Kyle Pearce
Now, for you and I, John, we don’t leverage personally against our policies in the corporation. We leverage in the corporation, in order to buy more assets because we don’t have a need for that on a personal level yet. However, our plan is that we will be levered using a leverage strategy down the road when that personal income is sort of a need or want of ours rather than us pulling money and then getting it chopped at the legs like most actively earned.

00:22:03:12 – 00:22:06:11
Kyle Pearce
Retained earnings have happened to them.

00:22:06:13 – 00:22:46:05
Jon Orr
Love it, love it. So what I’m hearing is if I own a corporation right now and I have some retained earnings and I’m concerned about what I’m going to do with them in terms of tax, my best bet right now is to figure out how do I move this and this is where this guidance comes in, how do I move this into a whole life policy or a permanent insurance policy so that I can eventually leverage or utilize some strategies that will help me reduce how much of that pot would go to the government and stay within either my family or to myself personally later in life.

00:22:46:05 – 00:22:57:07
Jon Orr
And that’s what I just heard from you. So if I’ve got that issue that I want to choose to utilize that strategy as one of the I really an efficient way to make that happen.

00:22:57:09 – 00:23:24:24
Kyle Pearce
Exactly. And again, there’s some other reasons why you might put policies that are longer or longer or larger than, say, your retained earnings, but at minimum, getting something a strategy for those retained earnings is a really important piece. And then in future episodes, we’ll talk about how policies may help us deal with some of the capital gains sort of taxes later for your estate, if that’s of value to you and something that’s important to you and your estate.

00:23:25:01 – 00:23:50:20
Jon Orr
Awesome. So if you’ve got some value out of today’s episode, we encourage you to hit the subscribe button rate or review if you listen to any episodes before that helps other Canadian investors, business owners, entrepreneurs find the episode so that they can also learn about the secret sources that we talk about here on a weekly basis. Every Wednesday, we’re putting out those episodes, so hit the rate and review button and also subscribe.

00:23:50:22 – 00:24:13:24
Kyle Pearce
And if you are looking to hop on a discovery call, you’ve heard something here. If you’re in Inc. business owner or an investor and you are looking for how you can have more tax efficient wealth, secret sources added to your strategy reach out at Canadian Wealth secrets dot com forward slash discovery that’s Canadian wealth secrets dot com for its discovery.

00:24:14:01 – 00:24:35:14
Kyle Pearce
I look forward to chatting with you soon. All right Canadian wealth secrets seekers will see you next step.

00:24:35:16 – 00:25:02:01
Jon Orr
Just as a reminder, the information you heard here today is for informational purposes only, you should not construe any such information or other material as legal tax investment, financial or other advice, John. Or he’s a mortgage agent with bricks. Mortgage License number m23006803. Carl Pierce is a licensed life and accident and sickness insurance agent and VP of Corporate Wealth Management with Pan Corp. team, which includes corporate advisors and Pan financial.

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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