November 19, 2025

When your wealth is built through a corporation, traditional strategies like RRSPs and TFSAs may not deliver the best results. Here’s why, and what to consider instead.

• RRSPs and TFSAs are effective for most Canadians but can limit flexibility and tax efficiency for incorporated business owners.
• For business owners, retaining earnings in a company often creates better long-term opportunities for growth and retirement income.
• Burkett & Co. helps business owners with thoughtful corporate planning to unlock valuable advantages.

For the average Canadian, registered accounts are cornerstones of personal financial planning, including the Registered Retirement Savings Plan (RRSP) and Tax Free Savings Account (TFSA):

• RRSPs allow pre-tax contributions that grow tax-deferred until withdrawal, ideally at a lower tax rate in retirement.
• TFSAs use after-tax contributions, but growth and withdrawals are entirely tax-free.

For employees with a steady salary, registered accounts can be effective tools for deferring taxes and encouraging disciplined saving. However, the same approach, while suitable for salaried individuals, can actually limit long-term wealth for business owners. That’s because corporate structures and strategic planning offer opportunities to significantly reshape the tax landscape.

Business owners have the ability to decide how much to pay themselves and how to manage retained earnings, and they can use these levers to implement different strategies to yield stronger results.

Retaining Earnings Inside the Corporation: Instead of paying out all profits as salary or dividends, business owners can leave funds inside their operating or professional corporation. These retained earnings are taxed at the small business rate, which is 11% for businesses in BC (on the first $500,000 of taxable income), compared to personal tax rates that can exceed 50%. By investing these funds within the corporation:

• More after-tax capital remains available for growth.
• Investment returns compound inside the business.
• Future personal withdrawals can be timed strategically to minimize tax.

This effectively transforms the company into a retirement savings vehicle with fewer contribution limits and more control than an RRSP or TFSA. For example:

A dentist has accumulated surplus earnings within her professional corporation and wishes to begin contributing to her TFSA. She currently has $102,000^[1] of available TFSA contribution room and expects to receive an additional $7,000 of new room each year. To fund the initial contribution, she must declare a dividend of $199,570^[2] in the first year, providing $102,000 of after-tax cash. Each subsequent year, she will need to declare a dividend of $13,696 to fund the annual $7,000 TFSA contribution.

Assuming a 6%^[3] annual rate of return within the TFSA, its value will grow to $577,627 after 20 years, and she will have paid a total of $224,793 in personal tax to fund those contributions. Upon her passing, the TFSA can transfer tax-free to a surviving spouse or common law partner, and when the spouse later passes away, the remaining TFSA balance continues to be received tax-free by the estate.

If instead, the dentist retained her excess earnings within the corporation, the corporate investment portfolio would grow to $957,916^[4] after 20 years assuming an annual rate of return of 4.24% (net of tax^[5]). Assets held within a corporation are not tax-free at death, but with proper post-mortem planning, such as a pipeline transaction, they can be taxed at effective rates as low as 26.75%. This can significantly reduce the overall tax burden on corporate assets at death and preserve more value for beneficiaries. As a result, the after-tax estate value is $646,877, after $311,039 of personal taxes.

Growing Beyond the Limits of Registered Accounts: For business owners with significant retained earnings, the strict annual limits of registered accounts can be constraining.

RRSP contributions are capped at 18% of earned income^[6] (up to $32,490 in 2025) which limits its tax deferral ability and must be funded with personal income, which triggers tax that might otherwise be deferred or reduced through corporate planning. At age 71, the account holder must convert the RRSP to a RRIF and begin mandatory minimum withdrawals each year, reducing flexibility. Upon death, any remaining RRSP or RRIF can transfer tax free to a surviving spouse. However, when the surviving spouse later passes away, the remaining RRSP or RRIF assets are fully taxable as income and may be subject to rates of up to 53.5% in BC.

Meanwhile, corporations can distribute dividends to shareholders based on individual cash flow needs and preferences, providing greater flexibility in managing income. With appropriate planning, assets retained within a corporation can be taxed as low as 26.75% upon death, making this structure potentially more tax efficient. For example:

A physician with a $500,000 RRSP plans to contribute $30,000 annually over the next 20 years. Assuming a 6% annual rate of return, the RRSP would grow to $2,773,350. If there is no surviving spouse, the full RRSP balance would be taxed as income on the final return. The after-tax estate value would be $1,289,608, after $1,483,742 of personal taxes.

Alternatively, if the same funds were invested within the physician’s professional corporation, the initial $500,000 corporate portfolio, with $26,700 in annual contributions (net of the 11% small business tax on $30,000), earning 4.24% annually after tax, would grow to $2,225,545^[7] after 20 years. With proper post-mortem planning, the after-tax estate value would be $1,499,137, after $726,408 of personal taxes.

When business owners invest through their corporations rather than registered accounts, they can often achieve greater tax efficiency and control, using strategies not typically available to salaried individuals. That said, several other considerations, such as preserving lifetime capital gains exemption eligibility, income splitting opportunities, tax on split income (TOSI), and alternative minimum tax, can influence the best course of action, though they fall outside the scope of this report.

At Burkett & Co., we specialize in helping business owners leverage the flexibility of corporate structures while navigating the complexities of Canada’s tax system. If you would like to learn more about how strategic corporate planning can help you grow and preserve wealth efficiently by aligning your corporate structure, personal goals, and investment strategy, contact us today to schedule a conversation with one of our tax professionals.

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[1] Consisting of $5,000 of accumulated room for each of 2009 through 2012, $5,500 for 2013 and 2014, $10,000 for 2015, and $5,500 for 2016, 2017 and 2018 and $6,000, 2019 through 2022, $6,500 for 2023 and $7,000 for 2024 and 2025.

[2] Assumes a personal ineligible dividend tax rate of 48.89% in BC.

[3] The portfolio return is composed of 2.18% interest income, 0.90% dividends, 1.23% capital gains, and 1.68% deferred growth, for a total return of 6.00%. Your actual after-tax return will vary based on several factors, including inflation, investment type, market conditions, asset allocation, and portfolio performance.

[4] $957,916 consists of a portfolio value of $819,166 plus accumulated Refundable Dividend Tax on Hand (RDTOH) of $138,750.

[5] Interest income is taxable at the top corporate tax rate of 50.67%. Dividends are taxed at the corporate tax rate of 38.33%. Capital gains are taxed the top corporate tax rate but benefit from a 50% inclusion rate. The deferred growth portion is not taxed until the investment is sold and is typically taxed as a capital gain at that time. RDTOH accumulates at a rate of 30.66% on taxable investment income, such as interest and capital gains, and also includes refundable Part IV tax, which is 38.33% on dividends received from other corporations. These taxes are refundable to the corporation when it pays taxable dividends to shareholders.

[6] Dividends received by an individual do not qualify as earned income for RRSP purposes and therefore do not generate RRSP contribution room.

[7] $2,225,545 consists of a portfolio value of $1,893,645 and $331,990 of RDTOH.