As a real estate investor, medical professional or other business owner, you’ve probably heard about RRSPs are a great way to save on taxes…and for many Canadians, they are. But if you have a corporation, the RRSP strategy for business owners can get a little more complicated. In this video, I walk through some key reasons why taking funds out of your corporation to contribute to an RRSP might not be as tax-effective as you think — and what alternatives you may want to consider.
Video Transcript: RRSP strategy for business owners
RRSP deductions — rather, the contribution itself — I think they’re fantastic for the vast majority of Canadians. I do question them where there are business owners that have corporations.
And I’m not saying you shouldn’t use an RRSP. I’m saying let’s give it some further thought.
Overall, keep in mind: in order to, for most people, have the cash available to put into the RRSP, they’re taking funds out — directly or indirectly — of their corporation and thus creating income.
They have an offsetting deduction through the RRSP contribution. In other words, we’ve netted zero. We didn’t really do anything, although in fairness we have pushed money into a savings vehicle that’s going to accumulate tax-free for a period of time.
But when it comes time to take those funds out, we are going to be hammered in most cases with taxes. And during that process, we’ve been unable to use the tax benefits of tax credits with respect to dividends — in other words, dividend tax credit, a lower capital gain inclusion rate, foreign tax credits. These items are lost to us and could have been used if we kept our funds in a different type of plan or savings vehicle — through a corporation, for example.
So again, I’m not saying we shouldn’t use them. I am saying there may be other alternatives worthwhile to be thinking of. For what it’s worth, I think it’s been 25 or 30 years since I’ve made a meaningful RRSP contribution. And it’s not that I’m anti-saving — I’m just looking to do so in a little bit more of a tax-effective manner, not just today, but in the future as well.
I’m George Dube, saving the world from tax, one bow tie at a time®.
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Resources
For additional resources related to how to maximize tax deductions, see:
- 2025 tax season tips: How to save more this year
- RRSPs & RRIFs: Contributing, withdrawing, over-contributing
More questions?
Still have questions? I want to help you Do wonderful things®, so please contact me today.
Remember – circumstances are unique! This information is summary in nature. Seek out advice from your tax advisor about your specific situation.
