Notes: Construction & Trade Contractors
Guides, notes et modèles des associés de Nimble & Cross, sur l’incorporation, la banque, la fiscalité et le financement.
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Guides, notes et modèles
- [ MEMO ]2026-11-03 · 48.7 KB[ OPEN ]
Building personal wealth with profits held in your company
There comes a point when the business has enough money for its own needs (to operate and grow) but much of your personal wealth is still tied up in it. You’ve earned the profits. You’d like some of that success to become personal wealth, but taking a large payment from the business would bring a large tax bill. One simple approach worth examining is to borrow personally to invest, then use salary or bonus payments from your company to cover the interest. The interest payments are generally tax-deductible,[#] allowing you to draw an equivalent amount from your company as salary or a bonus without additional net personal income tax.[#] At the same time, this allows you to put a substantial lump sum to work in your personal investment portfolio from the outset, giving the full amount time to compound and build you significantly more personal wealth over the long term. For an owner with surplus corporate funds, reliable cash flow and a mid-to-long investment horizon, it is a useful (and tax-efficient) way to withdraw retained earnings and put them to work. The company funds the interest. The lender funds the investment. The company does not just transfer a large balance of retained earnings into your personal portfolio tax-free. The arrangement works like this: You take out a personal investment loan. You invest the proceeds as a lump sum in non-registered account or contract.[#] Your company pays you a salary or a bonus equal to the loan interest. You pay the interest and claim the corresponding deduction against your personal income. Putting $250,000 to work Suppose you want to build a $250,000 personal investment portfolio using profits held in your company. At an assumed 50% personal tax rate, you would need to take $500,000 out of the company to have $250,000 left to invest. Instead, you borrow $250,000 personally and invest it in a segregated fund[#] contract held outside an RRSP or TFSA. At a 5% interest rate, an interest-only loan costs $12,500 a year. Your company pays you that amount as salary or a bonus, and you use it to pay the lender. The interest deduction offsets the additional employment income, leaving no additional net personal income tax on that payment.[#] You now have the full $250,000 invested from the outset, with compounding working on the entire amount. Rather than making a large taxable withdrawal upfront, you draw smaller amounts from the company over time to cover the interest. What that could mean over ten years At an assumed 6% annual compound return, here is how the investment could grow while the interest-only loan remains at $250,000: After | Your investment is worth | You keep after repaying the loan, before tax | Total paid to you by your company to cover interest 3 years | $297,754 | $47,754 | $37,500 5 years | $334,556 | $84,556 | $62,500 7 years | $375,908 | $125,908 | $87,500 10 years | $447,712 | $197,712 | $125,000 At the ten-year mark, the $250,000 investment grows to $447,712 . Even after repaying the $250,000 loan and allowing for $37,071 in redemption taxes, you are left with $160,641 in personal investment assets.[#] That is the opportunity: use company-funded interest payments to support a substantial personal investment today, giving it years to grow before the loan is repaid. Is this right for you? If you have accumulated profits in your company and want to build personal investments, this strategy is worth exploring. We would work through three questions with you: Can you comfortably carry the loan? The payments should leave room for the business’s obligations and plans. You should also be able to stay invested through a market downturn without being forced to sell, Is the potential return worth the cost and risk? We would assess the investment and borrowing together, including how the numbers change with lower returns, higher interest costs or increased loan payments. Is the tax structure properly set up? We would review the interest deduction, how the company pays you, and the lending arrangement before you commit, so the structure supports the intended tax result. Together, those answers help us determine how much to invest, how to fund the payments and whether the strategy belongs in your plan. Supporting notes Tax and payment requirements The personal tax offset works when the allowable interest deduction matches the additional salary or bonus paid by your company. The arrangement needs to meet the following requirements: Interest must qualify for deduction under the Income Tax Act. The treatment depends on your circumstances, including how the borrowed money is used. Quebec residents may face different deductibility rules. Your company pays you, and you pay the lender. The salary or bonus should be paid to you rather than directly to the lending institution. Dividends require a separate calculation. They have different tax consequences and cannot replace salary or a bonus with the same assumed result. Your company should not guarantee or secure the personal loan. Doing so may create adverse tax consequences. Payroll withholding must be addressed separately. Where appropriate, Form T1213, “Request to Reduce Tax Deductions at Source,” can be used to request reduced withholding. The expected interest deduction does not automatically change the company’s withholding obligations. Payroll contributions may also apply. Salary or bonus payments can create employee and employer CPP obligations if the applicable annual maximums have not already been reached. These costs should be included when calculating the payments needed to fund the interest. We would review the borrowing, company payments and intended deduction together before you commit. Assumptions behind the investment example The example assumes a $250,000 personal investment in a non-registered segregated fund contract, financed by an interest-only loan. Assumption | Figure Initial loan and investment | $250,000 Annual compound investment return | 6% Annual loan interest rate | 5% Annual taxable portion of the fund return | 25% Personal marginal tax rate | 50% Tax rate on income allocations | 25% The two 25% assumptions describe different things. The first is the portion of the fund return assumed to be taxable each year. The second is the assumed tax rate applied to income allocations. Neither is a general tax rule. The progression table shows investment values before redemption tax. The ten-year after-tax illustration allows for $37,071 in redemption taxes, leaving $160,641 after repayment of the loan. It is an illustrative result, not a personalized tax calculation. The company’s payments to cover interest are shown separately from the investment balance. They are an ongoing cost of the arrangement and must be included when comparing it with other uses of company funds. Investment choices The investment should suit your objectives independently of which lender provides the financing. Its costs, risks and any insurance or estate-planning features need to be considered alongside the borrowing terms. Segregated fund contracts A segregated fund contract combines investment funds with features of an insurance contract. Depending on the contract, these can include income, death and maturity guarantees, potential creditor protection, and estate-planning benefits that may help avoid certain estate fees. These protections have specific terms and conditions. They do not mean the investment cannot fall in value. Creditor protection and estate benefits also depend on the contract and your circumstances. Mutual funds Mutual funds offer another way to build a portfolio, whether you are accumulating wealth or approaching retirement. Commissions, trailing commissions, management fees and other expenses may apply. Mutual funds are not guaranteed, their values fluctuate, and past performance may not be repeated. Review the prospectus before investing. Loan terms and “no margin call” conditions An investment loan may offer interest-only payments, financing for the full investment amount or protection from margin calls caused by market fluctuations. Those features need to be read alongside the lender’s rights to change payments or demand repayment. A margin call requires you to address a shortfall in the investment securing the loan. Loan-to-value compares the outstanding loan with the value of that investment. For reference, the following Manulife Bank terms were described in July 2025 for eligible Manulife mutual fund accounts and segregated fund contracts. The offering included up to 100% financing, interest-only payment options and a one-step application process. These terms have not been confirmed as current. Loan or circumstance | Conditions Loans of $1 million or less | No margin call. However, if loan-to-value exceeds 125%, the bank may, at its discretion, require equal monthly principal payments plus interest, with principal amortized over a maximum of 20 years. Returning to interest-only payments | After three consecutive monthly payments, if loan-to-value has fallen to 100%, the borrower may request a return to the original payment arrangement, subject to bank approval. Loans above $1 million | A margin call is triggered at 85% loan-to-value, which must immediately be reduced to 75%. If the requirement is not met, the bank issues a demand for payment and processes full redemption. The borrower remains responsible for any shortfall. Guaranteed pledged security | The bank states that it will not trigger a margin call where the pledged security is guaranteed. “No margin call” does not necessarily mean unchanged payments. A switch from interest-only to principal-and-interest payments could materially increase the monthly amount you need to fund. The agreement offered to you, rather than a general product description, determines your obligations. Risk and advisory responsibilities Borrowing magnifies losses as well as gains. You must meet the loan and applicable tax obligations and repay the debt in full, regardless of investment performance. This strategy is intended for investors with a long investment horizon and the capacity and risk tolerance to carry that commitment through market fluctuations. Review the loan agreement and investment documents before proceeding. The lender’s approval is separate from investment suitability and tax planning. Manulife Bank acts as lender and loan administrator, not as an investment advisor. The investment dealer and advisor are responsible for assessing suitability and explaining borrowing risks. Tax and legal advice must address your circumstances. Important information This memo provides general information, not an individualized investment, tax, accounting or legal recommendation. Figures are illustrative, not forecasts, guarantees or a complete comparison of alternative strategies. Actual returns, borrowing costs, fees, taxes and interest deductibility will affect the outcome. Product features and lending terms can change. Before proceeding, the arrangement must be reviewed against your circumstances, applicable tax rules, and the investment and lending documents offered to you.
> read_file.sh█ - [ MEMO ]2026-06-18 · 1.3 KB[ CLIENTS ONLY ]
The state tax traps that catch expanding Canadian agencies by surprise
Selling into a new state can trigger a filing obligation before you have booked a single invoice there. Here is the threshold agents track automatically.
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