When an individual owns a small business corporation, common advice tends to be that they leave all dollars in excess of their living expenses inside of the corporation to defer paying personal tax. The idea is that this makes more dollars available for investment, which can be taken out as dividends at a lower tax rate later.
This advice may make sense when the alternative is a non-registered investment account taxed at the highest marginal rate, but when it is considered that funds leaving a corporation could be destined for the TFSA or RRSP, the notion of leaving it all in the corporation can be challenged. To do this, we will look at some simple analysis using a tool that can be downloaded from the PWL website.
