Building Wealth as a Business Owner: Personal vs. Corporate Investments
As a business owner in Canada, you have more flexibility than salaried individuals when it comes to building wealth. But with that flexibility comes complexity. Should you invest in a personal account, inside your corporation, or through a family trust? Each option has advantages and trade-offs that affect your taxes, access to capital, and long-term financial goals.
Here’s an overview of how to think about building a well-structured investment portfolio across personal, corporate, and trust accounts.
1. Start with the Big Picture: Cash Flow & Tax Planning
Before investing a dollar, business owners should look at their full financial picture. How much cash does the business generate? How much do you need to pay yourself for personal living expenses? Are you in a position to retain excess profits inside the corporation?
The goal is to build wealth tax-efficiently, while maintaining enough liquidity to fund your personal lifestyle and business needs.
The key tax planning concept here is deferral: corporate tax rates on active business income (12.2% in Ontario for small businesses as of 2025) are much lower than top personal tax rates (over 53% in Ontario). This creates an opportunity to leave money inside the corporation, invest it, and defer personal taxes until funds are withdrawn.
2. Personal Accounts: RRSPs, TFSAs & Open/Non-Registered
Registered accounts like RRSPs and TFSAs remain cornerstones of any wealth plan, even for incorporated professionals.
RRSPs offer tax-deferred growth and a deduction against personal income. Withdrawals are taxed as income, so planning the timing of withdrawals in retirement is key.
TFSAs offer tax-free growth and withdrawals. Although contributions are limited ($7,000 in 2024, with cumulative room for those 18+ since 2009), the TFSA is ideal for compounding wealth over time.
Non-registered investment accounts are funded with after-tax dollars, and investment income is taxed annually. But capital gains are taxed more favourably than interest, and dividend income from Canadian companies receives a dividend tax credit.
For many business owners, registered accounts are used first because they shelter investment income from both personal and corporate taxation.
3. Corporate Investments: Retain & Grow Within Your Corporation
If you have excess profits in your business after paying yourself a reasonable salary or dividend, corporate investing becomes a powerful tool.
You can invest retained earnings within your operating company or transfer them to a holding company (HoldCo) via tax-free intercorporate dividends.
Benefits:
Tax deferral: You pay only the corporate tax upfront. Personal taxes are deferred until funds are withdrawn.
Larger initial investment base due to the lower tax paid upfront.
Asset protection: Using a HoldCo can help insulate investments from operating business risks.
But there are risks and tax traps:
Passive investment income rules: Earning more than $50,000 in investment income annually can erode your access to the small business deduction (SBD), increasing your corporate tax rate on active income.
Refundable taxes: Investment income (interest, dividends) earned in a corporation often triggers refundable tax accounts like RDTOH. These taxes can be recovered when dividends are paid to shareholders, but it requires planning.
Limited access: Funds invested corporately are not as readily accessible for personal use without triggering tax.
4. Family Trusts: Flexible, But Complex
A discretionary family trust can be used to own shares of your corporation or holding company. It offers tax planning, wealth transfer, and asset protection benefits.
Why use a trust?
Income splitting: Subject to tax-on-split-income (TOSI) rules, trusts can allocate income to low-income adult beneficiaries in certain cases.
Estate freeze: Trusts are often used in estate freezes, allowing future growth to accrue to the next generation or to a HoldCo.
Control & flexibility: The trustee can control when and how income or capital is paid out to beneficiaries.
However, trusts come with costs: legal setup, ongoing tax filings, and compliance. And after 21 years, a trust is deemed to dispose of its assets at fair market value—potentially triggering tax.
5. A Coordinated Investment Strategy
The best approach is rarely all-or-nothing. Most business owners benefit from a tiered investment strategy that combines:
Personal RRSPs and TFSAs
A corporate investment strategy (either in the OpCo or a HoldCo)
Possibly a family trust, depending on family circumstances and goals
For example, a typical approach might be:
Draw a salary to maximize RRSP contributions
Contribute to a TFSA annually
Retain excess profits in the HoldCo to invest in a tax-deferred environment
Use a family trust to manage intergenerational wealth transfer
Final Thoughts
There is no one-size-fits-all approach. Decisions about where and how to invest should be made in the context of your full financial plan, including retirement goals, business succession, and estate planning.
At Rivers Wealth, we work with experienced tax professionals and estate lawyers to build customized wealth strategies for business owners. We can help you structure your investment portfolio across personal, corporate, and trust accounts to reduce taxes and grow your wealth for the long term.
Let’s connect to review your current structure and identify opportunities to make your money work smarter—today and in the future.
