Are RRSPs better for business owners?

Is your business-owner client investing within her corporation? If so, it might be time for a portfolio overhaul.

That’s because in the long run, investing within an RRSP yields better results, reveals a report by Jamie Golombek, managing director of tax and estate planning at CIBC Wealth Strategies Group.

His findings are significant because most Canadian business owners hold excess profits in their corporations (87%), the CIBC poll shows, and more business owners invest in corporate accounts than in RRSPs (27% versus 21%).

Golombek says in his report that RRSP investing yields superior results.

For example, after 30 years, the after-tax amount a business owner would realize with an RRSP is $46,200. With corporate investing, the business owner would earn only $24,500 to $44,600, depending on whether the income derives from interest, dividends or capital gains.

There are exceptions.

Over the short term, corporate investing can beat RRSP investing. And, if a client defers 100% of capital gains and realizes no annual income, holding investments in a corporation always yields a greater amount than an RRSP ($55,100 over 30 years, compared to the RRSP amount of $46,200). But few business owners would be able to do that over the long term.

Angus Reid conducted the survey for CIBC, polling 526 Canadian business owners and senior professionals in January 2017.

Read Golombek’s full report here.

Also read:

Why Canadians aren’t contributing to RRSPs

21% of Canadians use RRSP funds for daily expenses: poll

How tax rules disadvantage family business succession

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