Ep 10 & 11 Case Conference: Corporate Investing Puzzles

Apr 12, 2024

A deep dive into corporate retention versus using RRSPs and TFSAs for high earners. Simulations reveal how large corporate passive assets can create tax drag and trapped refundable taxes. Practical strategies for managing corporate bloat, optimal compensation, and measuring progress toward goals. A warning about overconcentrating in Canadian dividends and the need to diversify asset allocation.

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ADVICE

Favor TFSA For Long-Term After-Tax Growth

Use TFSA when you expect a long time horizon because its after-tax growth beats corporate investment drag.
Consider using corporate capital gains/capital dividends to fund TFSA contributions tax-efficiently.

INSIGHT

Model Realistic Returns Not Idealized Dividends

Corporate investment tax drag can be modelled and varies with portfolio yield and account flows.
Using realistic diversified returns and fees matters; pure dividend-only assumptions mislead comparisons.

ADVICE

Keep Money Flowing To Avoid 'Corporate Bloat'

If you earn moderately high income and use RRSP/TFSA while withdrawing to fund life, passive corporate income rarely becomes a problem.
Keep money flowing out to fund lifestyle and registered accounts to preserve corporate tax efficiency.

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Today's Case Conference episode is a supplement to Episodes 10 and 11 and uses several case studies to examine key subjects such as corporate bloat, tax-efficient retirement planning for high-income earners, the importance of diversifying your asset allocation, and more. For our first case, we take a step-by-step look at the decision to retain earnings in your corporation, and examine why you need to consider using some of that money for things like your personal RRSP and TFSA accounts. Our second case includes a number of examples. Using multiple simulations, we unpack how you could potentially sabotage the benefits of a corporation by letting its passive assets get too big. To wrap things up, we discuss another common temptation: the urge to transform your corporation into a tax-efficient, eligible dividend-generating powerhouse. We cover a lot in today's episode, so be sure to tune in for a deep dive on everything from addressing corporate bloat to diversifying asset allocation!

Key Points From This Episode:

(0:02:16) Our first case study concerning corporations, RRSPs, and TFSAs.

(0:08:32) When to use a TFSA and why it will depend on your unique circumstances.

(0:11:30) Our second case study on corporate bloat and optimal compensation for tax efficiency.

(0:16:38) Simulations of different combinations of earning and spending using Mark's optimal corporate compensation algorithm.

(0:19:50) Breaking down tax-efficient retirement planning for high-income earners.

(0:29:06) An example detailing a high earner and their spending, passive income limits, corporate bloat, and tax implications.

(0:35:12) Why it's so important to be able to measure progress towards your financial goals.

(0:38:12) Strategies for dealing with corporate bloat, tax optimization, and more.

(0:41:41) Our third case study where we examine what happens when you're overly focused on Canadian dividends and capital gains.

(0:43:43) Why it's so important to diversify your asset allocation.

(0:50:51) Negotiating fees and how this could be affected by upcoming regulations in 2024.

Links From Today's Episode:

Meet with PWL Capital — https://calendly.com/d/3vm-t2j-h3p

Dr. Mark Soth (The Loonie Doctor) — https://www.looniedoctor.ca/

Dr. Mark on X — https://twitter.com/LoonieDoctor

Benjamin Felix — https://www.pwlcapital.com/author/benjamin-felix/

Benjamin on X — https://twitter.com/benjaminwfelix

Benjamin on LinkedIn — https://www.linkedin.com/in/benjaminwfelix/