Withdrawing funds from your corporation to maximize TFSA generally
results in more after-tax cash
TORONTO, Oct. 13, 2015 /CNW/ - Business owners who invest in a Tax-Free
Savings Account (TFSA) rather than leaving surplus funds in their
corporation generally end up with more after-tax cash, especially when
the time horizon is significant, says Jamie Golombek, Managing
Director, Tax & Estate Planning, Wealth Advisory Services at CIBC (TSX: CM) (NYSE: CM).
"Many small business owners still don't appreciate the significant
benefit that TFSAs provide," says Mr. Golombek. "A TFSA is a great
opportunity to earn tax-free investment income, especially now that the
annual TFSA dollar limit stands at $10,000 for 2015. Leaving
investments in the corporation means there will be taxation on any
investment income earned, which may leave less after-tax cash in
business owners' pockets at the end of the day."
Mr. Golombek discusses different investment scenarios for business
owners in his new report TFSAs for Business Owners… A Smart Choice.
Tax deferral advantage on corporate investment income eroded by taxes
With corporate business income, a significant amount of tax is deferred
until after-tax income is distributed in a future year, leaving
business owners with more money to invest in their corporation than in
their TFSA. This may yield a higher amount of pre-tax investment income
in the corporation; however, investment income in a corporation is
taxable, and taxes can significantly erode the benefit of investing the
tax deferred amount over time.
"Taxes reduce the amount available for reinvestment as well as the total
amount of investment income that may be accumulated throughout the
years," says Mr. Golombek.
TFSA investment income completely tax-free, helping business owners
build retirement savings
While the TFSA may have less investment capital since it is funded with
after-tax dollars, most TFSA investors will still be left with more
investment income because all TFSA income is permanently tax-free.
"The TFSA will outperform corporate investments in most cases over the
long term, simply because no taxes are payable on the earnings in the
TFSA," says Mr. Golombek. "The bottom line is you may come out further
ahead by investing your hard-earned cash in a TFSA rather than leaving
the surplus funds in a corporate account."
Mr. Golombek also recommends using the TFSA to help build retirement
"Many business owners are so focused on building their business, they
can neglect planning for their retirement," he says. "Business owners
can set up a regular contribution plan to their TFSA to build their
investment portfolio, and maximize the benefits of tax savings."
Since corporate and personal taxes vary for each type of income and from
province to province, Mr. Golombek encourages business owners to seek
professional tax and investment advice prior to making an investment
CIBC is a leading Canadian-based global financial institution with 11
million personal banking and business clients. Through our three major
business units - Retail and Business Banking, Wealth Management and
Wholesale Banking - CIBC offers a full range of products and services
through its comprehensive electronic banking network, branches and
offices across Canada with offices in the United States and around the
world. You can find other news releases and information about CIBC on
our corporate website at www.cibc.com/ca/media-centre/.
SOURCE Canadian Imperial Bank of Commerce
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Media contact: Caroline Van Hasselt, Director, External Communications, at 416-784-6699 or e-mail: Caroline.VanHasselt@cibc.com