Corporate Assests for Retirement

Seven Strategies to Withdraw Corporate Assets for Retirement

A great strategy that many owners of Canadian-controlled private corporations (CCPC) use to build up retirement savings is to invest within their corporation using the benefit of the tax deferral between their personal income tax rate and the small business income tax rate.

At retirement business owners may end up with investment assets within their CCCP, and they must decide on how to best access their corporate assets/investments for retirement income.

Creating an overall income strategy when you have investment assets within a CCPC creates another part of the retirement income planning puzzle. All sources of retirement income have to be considered as you craft a strategy.

Three ways to withdraw assets from a corporation for retirement are:

  • Tax free
  • Taxable
  • Income Splitting with your Spouse/CLP

Tax Free Ways to Draw Corporate Assets:

Shareholder Loans 

Many business owners may have loaned money to their CCPC over time (i.e., as start-up capital), and the CCPC can pay back this loan to the owner on a tax-free basis.

Capital Dividend Account 

As the CCPC generates capital gains and is taxed within the corporation, it builds up the Capital Dividend Account (CDA). This is a notional account that your accountant will track for you.  

These capital gains could be generated from passive income (from investments) and/or from selling business assets. The Corporate Dividend Account is a tax-free amount built up by the non-taxable amounts of capital gains.  

At any time, you can clear out the CDA and have it paid to you tax-free. You will have to review the specifics with your accountant.

Retirement Allowances

If the owner of the CCPC was an active employer prior to 1996, they may be able to transfer $2,000 per year of employment prior 1996 to their RRSP. Also, for each year prior to 1989 of employment, they may be able to transfer an additional $1,500 per year to their RRSP, without requiring RRSP contribution room.

Taxable Ways to Draw Passive Investment Corporate Assets:

Taxable Dividends

In retirement, you will be able to receive money from your corporation in the form of taxable dividends.  

When doing this you may wish to take into consideration the Refundable Dividend Tax on Hand Account (RDTOH) for eligible and non-eligible dividends.

The income you earn on investments is taxed within your CCPC and then again when withdrawn and paid to you as a dividend from your company.  The Refundable Dividend Tax on Hand (RDTOH) is a mechanism based on the theory of integration, to ensure there is no difference on the tax you pay if income is earned personally or from your corporation.  

With the RDTOH account, as taxable dividends are paid to you, the corporation is refunded some of the income tax it originally paid on the passive income.

Since RDTOH represents money that belongs to you as a shareholder, you may wish to strategically receive taxable dividends over several years in retirement to recover the RDTOH over time, rather than all in one year, to spread the personal taxes over several years.   This strategy must be considered in conjunction with your income and cash-flow plan and can be complicated, so you will want to review it with your accountant.

Income Splitting: Potential Exclusions to TOSI Rules

Issue: TOSI Rules – Tax on Split Income

With a CCPC you have to be very aware of the TOSI rules, which is the Tax On Split Income. These rules were expanded in 2018 to limit the ability for business owners to pay taxable dividends to family members to split income by taking advantage of their lower tax rates.

Three Exclusions

There are three exclusions from the TOSI rules you will want to explore with your accountant.  Since the expanded TOSI rules have been around only since 2018, you will have to be careful if you plan to use the below exemptions. 

There is an exemption. Once the business owner is age 65, they can pay dividends to a non-active spouse or common-law partner without the TOSI rules applying.  There are some other requirements that your accountant can review with you, however, this can be an effective way to split the income with your spouse or common-law partner.

Business owners who earn passive income from investments (i.e. income from mutual funds and shares) within a CCPC, may be considered second-generation income and could be excluded from TOSI rules. As a result, the second-generation income could be paid to the non-active shareholder without the application of TOSI.

With this strategy, you must be very careful of the TOSI rules and may have to keep track of the capital and second-generation income, as well as meet other requirements.  Again, tax advice from your accountant is required.

  • Income Splitting in the Years after Business Sale or Dissolution.

If you have sold or wound up your business, there may be an additional way to pay income to non-active family members as shareholders.

Beginning the 2nd fiscal year after the company has ceased operations, if you have investments in your HOLDCO from perhaps the sales proceeds of your business and/or savings over time, you may be able to:

  • Pay income to all shareholders (i.e., the prior non-active shareholder),
  • Distribute capital to all shareholders (i.e., the prior non-active shareholder),
  • Without TOSI applying.

It is important to remember that to use this exclusion, the business can’t be active at all.  This can be complicated, with many rules to follow, so you will want to work with your accountant.

Retirement Income Puzzle

Retirement income planning is a puzzle that has to be put together using all your potential sources of income, to find an ongoing and adaptive solution for you.

A CCPC adds complexity to your retirement income and cash-flow strategy as you have to be aware of the TOSI rules.  Your accountant, lawyer, and CFP® professional should be able to assist you with this process over time.

For more information, you can refer to Preserving Wealth: The Next Generation – The definitive guide to protecting, investing, and transferring wealth by Jack Lumsden, MBA, CFP®


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Jack Lumsden, MBA, CFP®  Financial Advisor, Assante Financial Management Ltd.

This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on any of these, please make sure to see me for individual financial advice based on your personal circumstances. The information provided is for illustrative purposes only. Commissions, trailing commissions, management fees and expenses, may all be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. Please read the Fund Facts and consult your Assante Advisor before investing.

Insurance products are services provided through Assante Estate and Insurance Services Inc.

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