Should I Invest Inside My Canadian Small Business Corporation Account?

For many years, Canadian small business owners had a secret weapon for saving for retirement: their corporate investment accounts. Recently, new rules have been created around “passive investment” within a corporate account – but that doesn’t mean small business owners like you should shy away from investing outside of your core business.

Regardless of how you choose to invest your money, it is important for entrepreneurs like you to diversify your investment portfolio and set yourself up for long-term safety.

Taxation Rules for Investing Within Your Corporation

The main takeaway from the new rules is that passive investment within a corporation is taxed at a flat rate of around 50% across Canada.  That is similar to the highest personal tax rate that you would pay in most provinces!

Note: “Passive investment” refers to any income from investing in stocks, bonds, or other types of assets that are not part of the “core business activities” that your business is built on.

With so many intricate details about personal and corporate tax rates, we can all benefit from tax advice from experts who understand corporate taxation. Depending on how much passive income you are making, it may make sense to keep your investment portfolio separate from your corporation – just to simplify your business’ taxes and keep your small business tax deduction.

How to Buy Stocks in Canada Under Your Small Business

Looking to find an online brokerage platform to handle your investments? Before you do so, make sure to sit down with your corporate accountant and come up with an investing plan. This can include discussions about how much money you’d like to withdraw from your corporate account through salaries and/or dividends, and how much you’d like to keep within your corporation.

The benefit of online brokerages is that you can handle your own investments. Instead of choosing to invest in high-free mutual funds, many businesses choose to go down the online brokerage path to build their wealth.

Most of Canada’s leading online brokerages offer corporate accounts (often referred to as “business accounts”) along with the more-common personal broker accounts such as RRSP, TFSA, and plain non-registered trading account. Some popular online brokerages include Wealthsimple trade (which is a $0 broker but doesn’t offer corporate investing accounts), Qtrade, and Questrade.  If you are more comfortable investing with banks, BMO, TD, RBC, Scotiabank, and CIBC all offer corporate investing accounts too.

When it comes to choosing an online trading platform, we recommend comparing the following features:

  •   Trading fees and account fees
  •   Ease of use
  •   Customer service reputation
  •   Sign up offers and corporate account perks (these can really add up!)

What Investments Should I Put in A Corporate Investment Account?

Understandably, many entrepreneurs focus on the day-to-day of their businesses. However, from a risk-management perspective, this can be considered as “putting all of your eggs in one basket”.

While all your time and hard work can pay off and you can have a wildly successful launch, some entrepreneurs can also face below-average results. In these instances, it becomes apparent that it’s beneficial to keep your personal finances “personal”, and not have them intertwined with your corporation’s finances.

Many small business owners don’t have a lot of extra time to spare – in between their personal lives and building up their business ventures. Something that may be beneficial for this demographic may be more low-maintenance diversification within their investment portfolios.

If you are a business owner looking into investments, one approach to consider is purchasing a low-fee ETF. With a blink of an eye, business owners can invest in thousands of companies and bonds through an ETF.

A few final notes when it comes to selecting investments for your corporate account:

1) Don’t allow paralysis-by-analysis to take over, and put investing on the backburner.

2) Remember that diversification is the “free lunch” of investing.  The greater the sector and geographical variety in your investment portfolio, the better off you should be in the long run.

3) Get comfortable with your risk tolerance, and the amount of time and effort you’ll spend in constructing your investment portfolio.  These variables will determine what investments you select, and deserve much more consideration than “Which stock will get the best returns in the next year?”

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No matter what stage of your business journey you’re at, Small Business BC has the resources you need to succeed. Check out our range of business webinars, on-demand E-Learning Education, our Talk to an Expert Advisories, or browse our selection of business articles.