Canadian Money Forum banner
1 - 8 of 8 Posts

·
Registered
Joined
·
292 Posts
Discussion Starter · #1 ·
So my accountant says it's better to invest from within your corporation. (It just occurs to me as I write this that she could just mean vs. an RRSP.) I'm wondering what the specific benefits are of trading stocks within your corporation (i.e. through a corporate trading account).

The obvious one I can see is that if you have a year when you don't bring in a lot of money, you can sell some stocks and pay yourself a wage (although you could also loan your company money, pay yourself a wage, and carry a loss forward).

The potential downside I can see is that then I think you would get double taxed (i.e., I think the corporation would pay tax on the gain, then you would pay tax again).

Am I missing something here? Does anyone do this? And what are the economic/tax benefits vs. just investing your after tax dollars?
 

·
Registered
Joined
·
3,702 Posts
Before you invest money from your corporate account you should do a yearly budget and cash flow forecasts.In my case I can leave 7 figure cash in corporate account and make zero or invest it and make 5-10%.If you are worrying about having enough in business to pay your salary if you invest the money you are not at a point you should consider investing for your business.
 

·
Registered
Joined
·
11,215 Posts
... The potential downside I can see is that then I think you would get double taxed (i.e., I think the corporation would pay tax on the gain, then you would pay tax again).

Am I missing something here? Does anyone do this?
My understanding is there a several factors to consider that will influence this.

For example - if the business owner is paying themselves via dividends out of the corporation, there may be only the corporate taxes to consider on the investments.


Cheers
 

·
Registered
Joined
·
292 Posts
Discussion Starter · #4 ·
So if your corporation holds a dividend-paying stock (say Enbridge) in its portfolio, wouldn't the corporation pay tax on the Enbridge dividend? Then wouldn't you have to pay tax again (dividend tax, granted) when you withdraw your company's profit as a dividend? Or am I missing something? It seems like investing outside of the corporation would result in less taxes.

My understanding is there a several factors to consider that will influence this.

For example - if the business owner is paying themselves via dividends out of the corporation, there may be only the corporate taxes to consider on the investments.

Cheers
@Marina628 I have about 12k in annual corporate expenses (insurance, office expenses, mileage, software, etc.). Right now, I'm working on an unrelated software project, so my business revenue is zero. I should be back to making $60-$100k/year next year, though. I have a lot of money saved outside of my corporation, but I could loan it to the corporation and then invest inside the corporation if that receives more favorable tax treatment. My cost of living is low; I could easily live off minimum wage.
 

·
Registered
Joined
·
1,006 Posts
My understanding is that the government bends over backwards to keep the ultimate total tax paid essentially the same whether the money is kept within the corporation or taken out in whatever manner. That said, at this time because the small business tax rate has fallen in recent years, AFAIK there is a slight advantage to monies held in the corporation and taken out as dividends but it is not major. The main benefit to the corporation is probably tax deferral and spreading income out into lower income years.
 

·
Registered
Joined
·
92 Posts
Taraz, the corporation will pay tax on the dividend in the year it receives a dividend from an investment. When it issues a dividend to you, you will have to pay tax on it, but the corporation will get a refund of the tax it originally paid (with a few more intricacies, look up Refundable Dividend Tax on Hand for the full details).

Don't loan the corporation your own money for investing, there is no benefit that way. The benefit of investing through a corporation is mainly tax deferral on b, and tax savings if your tax bracket is lower when you withdraw the retained earnings and investment income.
 

·
Registered
Joined
·
292 Posts
Discussion Starter · #7 ·
Taraz, the corporation will pay tax on the dividend in the year it receives a dividend from an investment. When it issues a dividend to you, you will have to pay tax on it, but the corporation will get a refund of the tax it originally paid (with a few more intricacies, look up Refundable Dividend Tax on Hand for the full details).

Don't loan the corporation your own money for investing, there is no benefit that way. The benefit of investing through a corporation is mainly tax deferral on b, and tax savings if your tax bracket is lower when you withdraw the retained earnings and investment income.
Thanks cheech10, that clears it up. There's no need for a tax deferral at this point (as I'm not making any money right now), but I'll keep that in mind for future years.
 

·
Registered
Joined
·
11,215 Posts
... just bear in mind that while people are doing their best in responding, there's lots of variation in experience.
I'd suggest also getting the accountant to confirm his/her thinking ... multiple independent sources for the same information makes it that much more dependable.


Cheers
 
1 - 8 of 8 Posts
This is an older thread, you may not receive a response, and could be reviving an old thread. Please consider creating a new thread.
Top