‘If you can afford to leave the money in the company, there is a bigger pool of capital to invest,’ says Jamie Golombek, managing director, tax and estate planning with CIBC Private Wealth
Despite capital gains changes that took effect in June, the extra corporate investment income when investing inside a corporation more than outweighs the higher corporate tax, a CIBC report says.Most Canadian small business owners are better off investing their after-tax corporate earnings inside their corporations rather than in their investment portfolios despite the capital gains tax hike that took effect in June, argues a new report from Canadian Imperial Bank of Commerce.
“There were some suggestions that it was time to collapse the corporations, to take all the money out. Some even said, ‘What’s the point of having a corporation any more?’” Mr. Golombek says. income – are better off leaving money in the corporation because of the tax deferral of up to 40 per cent, depending on which province they live in.
The report uses the example of an Ontario corporation that earns $10,000 of SBD income. It shows that after paying $1,220 in corporate taxes, there would be $8,780 of corporate capital to invest within the corporation. “Our report takes you back to the first principle of investing in a corporation: When you earn money in the corporation, you have a significant tax deferral advantage on that income, which means that, effectively, you have more to invest. It’s that simple,” Mr. Golombek says.
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