Corporate Investments

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Corporate Investment Services

“The world’s best asset managers don’t manage million dollar portfolios, they manage billion dollar funds”

Corporately Held Investments

The tax rate on business income earned by a corporation is generally much lower than the top personal marginal tax rate for an individual who earns business income. Until income is withdrawn from a corporation as a dividend, there is a “tax deferral” in the form of personal taxes that are deferred until a dividend is paid.

On the first $500,000 in taxable income in a given year a lower corporate tax rate applies (this is referred to as the small business deduction). The tax deferral on this income ranges from 35.5% to 41% in 2018. For active business income above the small business deduction the 2018 tax deferral ranges from 20.4% to 20.7%. The amount of tax deferred in the corporation results in higher starting capital for investments, compared to an individual investor. So, if the higher amount of after-tax business income is invested inside the corporation, a shareholder may end up with more after-tax income from the corporation (compared to investing personally) at the end of the investment period.

As of 2019, the small business deduction was reduced for Canadian Controlled Private Corporations with over $50,000 of certain investment income — “adjusted aggregate investment income or passive investment income” — in the previous year. The small business deduction will be reduced by $5 for each $1 of passive income that exceeds $50,000 and will reach zero once $150,000 of passive investment income is earned in the previous year. For purposes of calculating the passive investment income threshold, investment income of ALL associated corporations is combined. Private corporations with no active income such as holding companies will not be impacted.

What Now?

1. Corporate Investments should utilize a “buy and hold” strategy to defer capital gains if a corporation is approaching the $50,000 threshold.

2. Focus on Capital Gains versus dividend or interest income. In terms of asset allocation within different investment accounts, it is more efficient to hold capital gains bearing investments within your corporation due to the higher tax rate. Corporate Class Funds additionally allow for the use of investment management fees to offset gains. They are also designed to increase capital gains versus dividend and interest income which is less tax advantageous. These funds were specifically designed for funds in non-registered and corporate accounts.

3. Consider whether an Individual Pension Plan (IPP) or Retirement Compensation Arrangement (RCA) may be a more efficient place to grow your assets over the long run. Considerations should be made whether or not you plan to keep the corporation open for the long term, the total value of assets in retained earnings and what other investment and retirement assets you hold.

4. Corporately owned exempt life insurance may be appropriate as income earned within these plans is tax sheltered. For assets intended to be passed on to heirs in an estate insurance can also be a very effective place to hold assets in terms of crediting the Capital Dividend Account and paying out benefits tax free.

Frequently Asked Questions

Most financial planning & investment firms are owned by the investment companies that they represent. Under that structure a client will always receive biased advice. Up Financial is an independent wealth management firm with no bias towards any one particular company meaning that we can always act in the best interest of clients and maintain a fiduciary standard of care.

Our advisors have different designations which can be seen in our bios in the “about section”. At minimum your Financial Planning is always completed by a Certified Financial Planner and Investment advice is always completed by a Chartered Investment Manager. Nathan and Eli are both Fellows of the Canadian Securities Institute and Eli holds a number of additional advanced designations that apply to complex financial planning situations. We believe in ongoing education and all of our advisors are currently completing additional designations, furthering the value we can provide clients.

We are compensated on a fee-based structure. Whereas most of the industry uses a commission-based structure where advisors are paid based on product sales, we’re compensated independent of sales which means that our interest are aligned. There are no hidden conflicts of interest to promote one product or strategy over another, or one investment over another.
We work with a range of clients from Business Owners, Successful Professions to Retirees. Our average client has been $500k to $2M in assets with us but we have lots of clients in excess of $5M and a number (especially as we work with our clients children) with less than $100k. We have different platforms available for those who don’t qualify for High Net Worth pricing for certain investment structures. Our philosophy is that everyone deserves quality financial advice and that you should not be restricted just because you “don’t have enough money”.
This will depend on the client and we leave it up to you to speak to one of our advisors to determine a structure that works for you. In the beginning of a relationship we will be speaking weekly for the first 3-6 months until the initial structuring is complete. After that many people move to quarterly reviews or annual reviews. It’s important that we can communicate at least yearly. All clients receive monthly market updates and have access to their accounts online daily.
As a firm we do not believe in asset minimums. We made the decision as a firm that everyone should have access to quality financial advice regardless of their net worth. What we did was establish additional platforms that allow us to take on smaller clients on a cost-effective basis for the client. Certain investment structures have minimums which are not set by us. We utilize robo platforms with low-cost ETF portfolios until your portfolio reaches a size where we can get you access to our regular portfolios. The easiest thing to do is give us a call or send us an email and we can outline the best options based on your individual situation.

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