Financial planning when you own the business

For an employee, the big questions are settled by someone else, and planning is mostly about spending less than you earn and investing the difference. As an owner, you make those calls yourself, every year, and they interact. How much you pay yourself affects your tax, your RRSP room and your CPP; what you leave in affects how it's taxed. Nothing sits in its own box.

There's also a concentration problem most employees never face. A large share of your net worth, and often most of your income, depends on one business — sometimes resting on you personally. That can be the right bet while you're building, but it's worth naming. The value of planning is less about one clever move than about seeing how the pieces fit.

You generally take money out of your corporation as salary, as dividends, or some combination. Salary is a deductible expense, builds RRSP room, and means paying into CPP — a cost now, a benefit later. Dividends come from after-tax profits, are taxed differently in your hands, and don't build RRSP room or CPP. Neither is simply better; they're different tools, and many owners use a mix.

The right blend can't be settled in a guide, because it turns on your details — what you need to live on, what the business earns, what other income a spouse has. The way corporate and personal tax fit together is what accountants call integration, and a planner ties that to your retirement picture.

In a share sale, the buyer purchases the shares of your company and takes on the business as it stands. In an asset sale, they buy specific assets — equipment, client lists, goodwill — and leave the corporate shell behind. The two routes are taxed very differently, and what's best for a buyer is often the opposite of what's best for you.

Canada's Lifetime Capital Gains Exemption can shelter part of the gain when you sell qualifying small-business-corporation shares. Whether yours qualify depends on tests applied to the company, and there's often work to do in advance — one reason planning a sale takes years. We won't put figures on this; the rules change, and confirming them is your accountant's and lawyer's job.

If the business earns more than you need to live on, you don't have to take it all out. Profits left in the corporation can be invested there — one advantage of being incorporated, since you're investing money not yet taxed personally. But that income is taxed under its own rules, and taxed again when it comes out.

So corporate investing only makes sense as part of a connected picture. The balance between paying yourself now, leaving money in to invest, and drawing it out later runs through your personal tax, your RRSP and TFSA room, and your retirement. There are also rules on how much passive income a corporation can earn before its tax treatment changes — another reason this sits with your accountant.

Employees often retire on a pension and personal savings. As an owner, you usually don't have a pension, so the business does that job — paying you income while you keep it, or being sold to fund the years after. That can work well, but it puts a large part of your retirement on one business, on conditions you don't fully control.

Addressing that concentration doesn't have to mean stepping back. Often it's about gradually building wealth outside the company, and being honest about what the business is worth to someone else rather than banking on a sale price you can't be sure of. This is where the personal, corporate and estate sides meet as one plan — coordinated with your accountant and lawyer as the technical pieces come up.