The article “Corporate investments for retirees” was originally published in MoneySense on February 15, 2022. Photo by Andrea Piacquadio from Pexels.

Retired with cash and investments in a corporation, and wondering how to withdraw with minimal tax implications?

I’m not using my Canadian corporate company anymore. I’m 67, delaying CPP and OAS. I have $210K in my company that I need to take out. What is the best way to do this with minimal tax? 

My accountant is working with me but really doesn’t think it’s the best strategy. He has a three-year plan to take out $70K per year, but the tax implications of that are high. 

I also have money in my company in TD Direct Investing that I guess I would have to move into personal and that will trigger gains as well. My accountant has not talked about this. 

With so many older Canadians with small companies retiring, this might be a good subject.  – Carol

Corporate investments for retired small business owners

Thanks for your question, Carol. I agree that it is a good one that applies to a lot of retiring business owners who have cash or investments in their company or in a related investment holding company.

The less cash or investments you have in a corporation, the more beneficial it may be to wind it down in a single year or over a couple years to simplify your financial affairs and reduce your ongoing accounting and legal costs.

The more cash or investments you have in a corporation, the more it may make sense to keep the corporation throughout retirement. Corporations do not have the required withdrawals like a registered retirement savings plan (RRSP) account do either. So, you do not have to withdraw from your corporation, Carol. It is a choice, and the corporation can remain even after you retire.

Strategies for withdrawing cash from corporate investments

Those with significant corporate savings that they may not need during their own lives can consider different tax and estate planning strategies.

One strategy involves freezing the value of your shares of the corporation (an estate freeze) and issuing new growth shares so that future growth of your corporate assets accrues to your children or grandchildren, or to a family trust of which your children or grandchildren are beneficiaries.

Another strategy is to use corporate savings to buy a life insurance policy. Choose one that can pay a death benefit into the corporation that can be withdrawn with little to no tax payable when paid to your beneficiaries upon your death.

Corporate decumulation (withdrawing money) can be a lot easier if you have very little savings or lots of savings. It is when you are in between when it becomes trickier. I would consider your $210,000 of savings to be “in between,” Carol.

The tax implications of withdrawals and dividends

If you have no other sources of income and take $70,000 of dividends for the next three years, your tax may only be about $10,000 per year. This figure could be higher or lower depending on your province or territory of residence and any tax credits or deductions you may be entitled to claim, so there is a big asterisk on that tax estimate.

By comparison, $70,000 as a salary may have roughly $15,000 of payable tax. But again, it depends upon your situation.

The point is that dividends are taxable at a lower tax rate than salary to reflect the corporate tax already paid on the profit retained in the corporation. Corporate savings are typically paid out as dividends once you retire.

By delaying your CPP and OAS pensions, you will be able to boost your monthly pension income. This is a compelling option for a self-employed person who may not otherwise have an employer defined benefit pension plan. For each year you defer your CPP and OAS pensions, they will increase—by 8.4% and 7.2% respectively in your case, Carol. In the meantime, by deferring them, you have a lower income to take dividends out of your corporation at a lower tax rate.

RRSPs & small business owners

You mention a TD Direct Investing account for your corporation. Depending how much you have saved in the corporate investment account, you may want to reconsider your approach.

If you have a lot of corporate investments, you may want to look at your RRSP and other investments to determine how much money you might need from your corporation to fund your retirement spending. You may not be able to easily close your corporation if there are a lot of assets and it may be disadvantageous.

If you have a large enough RRSP that may fully fund your retirement along with eventual Canada Pension Plan (CPP) and Old Age Security (OAS), you may want to reconsider your dividend plan if you have a lot of corporate investments too.

In this case, you might choose to transfer some of your corporate cash into your corporate investment account to invest it, possibly taking modest dividends each year in retirement to try to minimize your combined persona and corporate tax payable.

There is no one-size-fits-all answer as it really depends on your other assets, your spending, your life expectancy, and your estate wishes.

Regardless, you may benefit from an interdisciplinary approach to your retirement planning, Carol. There are definite tax implications that require input from your accountant. They may be able to help with retirement decumulation modelling and estate planning. You may be able to do it on your own. Or you may benefit from developing a retirement and estate plan with the help of other professionals like a Certified Financial Planner or an estate lawyer.

Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever. If you have a question for Jason, please send it to