How do I take money out of my corporation when I retire?

Why you can't just pull it all out

A $3 million corporate portfolio paid out as dividends in one year would be taxed at the top personal rate on most of it. Spread over 20 years at $150,000 a year, much of it is taxed at middle rates instead. The difference can be hundreds of thousands of dollars. Retirement from a corporation is a 20-year withdrawal plan, not an event.

The tools

1. Dividends, paced. Pay out enough each year to live on, and to fill up the lower tax brackets, and no more. The refundable tax the corporation paid on its investment income comes back as dividends are paid, which helps.
2. Individual Pension Plan. If you set one up during your working years, it pays you a pension in retirement, and the corporation deducted the contributions along the way.
3. Capital dividend account. The non-taxable half of capital gains the corporation realised, and life insurance proceeds it received, accumulate here and can be paid to you entirely tax-free.
4. Corporately owned permanent insurance. Builds value on a tax-sheltered basis during your life; at death, the payout flows through the capital dividend account to your estate tax-free. Often the most efficient way to pass a corporation's wealth to the next generation.
5. Winding up. Eventually the corporation may be closed, with remaining assets distributed. Timing this is a tax decision.

Don't forget the passive income rule

If you're still practising part-time while drawing down, investment income in the corporation can still grind your small business limit. The rule explained →

And the estate

If you die owning shares of a corporation full of investments, your estate can face tax on the shares and the corporation faces tax when it distributes, a problem called double taxation. Planning (pipeline strategies, insurance, estate freezes) prevents it, but only if done in advance.

Start early

Most of these tools work best when set up years ahead. If retirement is within 10 years and you haven't mapped the withdrawal plan, book a call.

Related questions

• Should I pay myself salary or dividends from my corporation?
• What is the $50,000 passive income rule and why does my accountant keep mentioning it?
• If my business partner died, what happens to their share, and do we need insurance for that?