Top 10 Financial Concepts for Business Owners: #6 Get Long-Term Savings Growing in Tax Efficient Investments

It is important to have a healthy amount of safe, working capital. However, corporate savings over and above the amount needed for working capital can be invested for a longer term at a better rate of return.

In addition to striving to achieve a better return, tax efficiency is a major consideration for investing inside of a corporation. Passive investment income for corporations and trusts is treated at the highest marginal tax rates across all provinces, and thus, tax efficiency of income becomes more important.

Currently, in Alberta, the combined federal/provincial rate on investment income is 46.67%. If a small business corporation earns more than $50,000 in annual income from passive investments, it will start to lose access to the Small Business Deduction (SBD). For every dollar of investment income above $50,000, the SBD will be reduced by $5, and will totally disappear if the business has $150,000 or more in annual passive investment income.

We have built out longer-term tax-efficient investment options for those business owners looking to earn a better return on their investment capital. This risk level typically ranges from low (fixed income funds/ETFs) and tops out at moderate (balanced funds/ETFs). For the most part, these funds are either corporate class funds or simply trusts that have a long-track record of paying out tax-efficient income through low turnover and offsetting expenses against income, among other strategies. Additionally, strategies are implemented within our mandates to offset capital gains with losses when it makes sense from an investment perspective.

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