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Retained Earnings Tax Strategy

The tax strategy for businesses is designed for well-heeled business people who hold or wish to hold a substantial investment portfolio in their corporation.

This strategy enables shareholders to tap into liquidities while reducing their tax burden.

Business owners who accumulate cash surpluses in their companies see their slim interest yields cut by a further 46 % tax rate, knowing full well that dividends eat up another 36%* in taxes.

What if your client used the following retained earnings tax strategy to solve this problem instead?
The company invests part of its surplus (retained earnings) in a tax-sheltered investment vehicle. At retirement, a business owner uses this tax concept, recovers the capital and interest and gets a permanent tax deferral to boot.

With a strategy

No strategy

Company
Retained earnings
$1,000,000

Tax concept
investment
$500,000

Company
Retained earnings
$1,000,000

Conventional 
investment
$500,000

Retired
Shareholder
- $0.00 in taxes

Retired
Shareholder
- $180,000 in taxes

Retired
Shareholder
$500,000

Retired
Shareholder
$320,000

This tax concept may not necessarily work for all types of companies, make sure your client qualify before applying this approach.

*Maximum tax rate

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