How to Take Money out of Your Small Business Tax Efficiently


This is part one in a multi-part series explaining some of the lesser know strategies used to effectively get money out of your corporation most tax efficiently.

Many small business owners work a lifetime to build up retained earnings in their corporations, only to have CRA punish them with double taxation when they decide to take that capital out of their business.  If you have planned well, you’ve maximized your RRSPs or other savings vehicles and have paid down personal debt.

Through good planning advice, you can distribute money out of your corporation in various tax-preferred ways.

  • Declare dividends to a lower income shareholder (Spouse or Children over 18). 
    • You can issue shares to children over 18 years of age, as well as your spouse, and declare dividends to those share classes.  In many cases, these dividends can be received with almost no tax implications.  This can be very helpful in funding post-secondary education, or other expenses relating to your children
  • Utilize the Capital Dividend Account (CDA)
    • 50% of any taxable capital gains generated inside the corporation will credit the CDA
    • Death benefits of a life insurance policy less the Adjusted Cost Basis will also credit the CDA
    • Capital Dividends can be distributed to shareholders tax free.
  • Refundable Dividend Tax on Hand (RDTOH)
    • Between 25-33% of Investment income earned inside a corporation (excluding capital gains), are credited to the RDTOH.
    • The company recovers 1/3 of every taxable dividend dollar it pays out against this account.


Utilizing the CDA and RDTOH still requires you to take on investment risk associated with generating the income necessary to utilize them.  If you still find yourself with the problem of having too much capital locked inside your corporation, be it your operating business or your Holding Company, there are some other ways to deal with it that will cut CRA out – and many are risk free.  There are a few examples that involve permanent life insurance, which will be addressed in Part 2 of the blog.

Many of these strategies require proper advice and guidance to ensure they are done properly.   Be sure to sit down with an estate and tax planning specialist to review your business’s specific situation and to learn which strategies may be best. To learn and understand more please contact us here at TriDelta Financial.

This article was written by our VP- Estate Planning, Asher Tward.