Corporate vs Personal Investing: When to Use Each

Corporate Investing vs Personal Investing: The Coordination Question

Many incorporated business owners ask: "Should I invest in my corporation or my personal accounts?"

The answer is usually: Both, in coordination.

Corporate investing vs personal investing in Canada isn't an either/or decision:it's about understanding when to invest corporately vs personally, and how to coordinate both strategies for maximum tax efficiency.

Part 1: Understanding the Tax Differences

Corporate Investing: Tax Deferral

When you invest through your corporation:

• You pay corporate tax (~12-26% depending on income type and SBD eligibility)
• Instead of personal tax (up to 53% in top brackets)
• You keep 40%+ more capital working for you
• You pay personal tax later, when you withdraw funds

The Benefit: Tax deferral. You pay lower tax now, keep more capital invested, and compound returns on a larger base.

Personal Investing: Tax-Advantaged Growth

When you invest personally (RRSP, TFSA):

• RRSP: Tax deduction now, tax-deferred growth, taxed on withdrawal
• TFSA: After-tax funding, tax-free growth and withdrawal
• RESP: Government grants, tax-deferred growth, taxed in child's hands

The Benefit: Tax-free or tax-deferred growth, but requires after-tax dollars to fund.

Part 2: The Coordination Strategy

Step 1: Maximize RRSP First (If in High Tax Bracket)

If you're in a high personal tax bracket (45%+), RRSP contributions offer:

• Immediate tax deduction at your marginal rate
• Tax-deferred growth
• Tax on withdrawal (usually at lower rate in retirement)

Example: $10,000 RRSP contribution at 50% tax bracket = $5,000 tax refund. You've effectively invested $10,000 for $5,000 out-of-pocket.

Step 2: Maximize TFSA

TFSA offers:

• Tax-free growth and withdrawal
• No impact on government benefits (OAS, GIS)
• Flexibility to withdraw and re-contribute

Priority: After RRSP (if in high bracket), maximize TFSA before investing corporately.

Step 3: Invest Surplus Corporately

After maximizing RRSP/TFSA:

• Invest surplus corporate cash
• Benefit from tax deferral (12-26% corporate tax vs. 53% personal)
• Keep capital working for long-term growth

Part 3: When to Invest Corporately vs Personally

Corporate investing in Canada is particularly advantageous when:

1. You're Already Maximizing RRSP/TFSA : Personal accounts are full
2. Long Time Horizon : Corporate deferral works best over 10+ years
3. High Personal Tax Bracket : The deferral benefit is larger
4. Surplus Corporate Cash : You have excess capital in the corporation
5. Estate Strategies Goals : Corporate structures enable multi-generational wealth transfer

Part 4: When Personal Investing Makes More Sense

When deciding whether to invest corporately vs personally, personal accounts are better when:

1. Low Personal Tax Bracket : RRSP deduction is less valuable
2. Short Time Horizon : You need funds within 5-10 years
3. Government Benefits : TFSA doesn't affect OAS/GIS eligibility
4. Flexibility Needed : TFSA allows tax-free withdrawals
5. RESP Grants : Government matching makes RESP valuable for education savings

Part 5: Income Types Matter More in Corporate Accounts

When investing corporate surplus in Canada, income types matter more than in personal accounts. In personal accounts, you generally focus on total returns. In corporate accounts, income types matter more because they're taxed differently:

• Interest Income: Taxed at ~50% (top rate)
• Canadian Dividends: Taxed at ~38-48% (depending on type)
• Capital Gains: Taxed at ~25% (50% inclusion)
• Foreign Income: Taxed at ~50%+ (with foreign tax credits)

This is why corporate-class funds and tax-efficient structures matter more in corporate accounts.

Part 6: Common Scenarios

Scenario 1: High-Income Professional (50% Tax Bracket)

Strategy:

1. Maximize RRSP ($31,560 in 2025)
2. Maximize TFSA ($7,000 in 2025)
3. Invest surplus corporately

Rationale: RRSP deduction at 50% is valuable. Corporate deferral (12-26% tax) beats personal investing (50% tax) for surplus funds.

Scenario 2: Business Owner with Variable Income

Strategy:

1. Maximize TFSA (flexible, no tax on withdrawal)
2. RRSP in high-income years (when deduction is valuable)
3. Corporate investing for consistent surplus

Rationale: TFSA flexibility helps with variable income. Corporate accounts provide steady tax deferral.

Scenario 3: Approaching Retirement

Strategy:

1. Maximize RRSP (if room and high bracket)
2. Maximize TFSA
3. Consider corporate dividend strategies for retirement income

Rationale: Coordinate withdrawal strategies. Corporate accounts can fund retirement through tax-efficient dividend strategies.

Part 7: Coordination with Other Strategies

Your corporate vs. personal allocation interacts with:

• SBD Grind: Passive income in corporate accounts affects small business deduction
• $50K Threshold: Managing passive income limits
• Corporate-Class Funds: Tax-efficient structures for corporate portfolios
• Estate Strategies: Corporate structures enable multi-generational transfer

Frequently Asked Questions

Q1: Should I take salary or dividends to fund my RRSP?

This depends on your situation, but generally:

• Salary: Creates RRSP room, CPP contributions, but higher personal tax
• Dividends: Lower personal tax, but no RRSP room, no CPP

Work with your CPA to model both scenarios based on your income needs and retirement goals.

Q2: Can I use corporate funds to contribute to my RRSP?

Yes, but you need to pay yourself salary or dividends first (creating personal income and RRSP room), then contribute. You can't contribute directly from the corporation.

Q3: What about RESP for my children?

RESP should generally be prioritized for education savings due to government grants (20% match up to $500/year per child). This is separate from the corporate vs. personal decision for your own retirement.

Q4: How does the $50K passive income threshold affect this?

If you're approaching the $50K passive income threshold, you may want to:

• Shift some investments to personal accounts (RRSP/TFSA)
• Use corporate-class funds to reduce taxable income
• Consider life insurance (tax-exempt growth)

Resources & Recommended Reading

Related Articles

• The SBD "Grind" & Your Corporate Portfolio : How passive income affects corporate tax rates
• Corporate Class Funds and the Powerful Magic of Tiny Changes : Tax-efficient corporate investing
• The $50K Rule: How Passive Income Affects Your Small Business Deduction : Managing passive income limits
• Corporate Investing Services : How we help optimize corporate portfolios

External Resources

• CRA: RRSP Contribution Limits : Annual contribution room and limits
• CRA: TFSA Contribution Room : TFSA limits and rules
• CRA: RESP Grants : Canada Education Savings Grant information

Next Steps

The optimal strategy is coordination, not compartmentalization. Maximize personal tax-advantaged accounts first, then invest surplus corporately for long-term tax deferral.

Ready to coordinate your investment strategy? Book a 15-minute consultation to discuss how to optimize your allocation between corporate and personal accounts based on your specific situation.