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RRSP, or leave it in the corporation? The answer depends on what it earns.

Not a philosophical question — a verified 30-year comparison shows the answer changes completely depending on whether the money earns interest, dividends, or capital gains.

Every incorporated business owner with genuine surplus eventually faces this fork: withdraw money and contribute to an RRSP, or leave it invested inside the corporation. The honest answer isn't "always RRSP" or "always corporate" — it depends heavily on what the money actually earns once invested.

Why corporate investment income is taxed differently than you'd expect

Active business income inside a corporation is taxed at the small business rate — roughly 12% combined. Investment income is a completely different story: interest, dividends, and capital gains earned inside a corporation are taxed at a much higher rate — often around 50% initially — with a portion refunded later through the Refundable Dividend Tax on Hand (RDTOH) mechanism once the money is actually paid out as dividends. Many owners assume all corporate money is taxed at the low small business rate. It isn't, once that money starts earning investment returns instead of business income.

A real, verified 30-year comparison

A widely cited professional analysis modeled a $30,780 contribution — either into an RRSP, or retained in a corporation and invested — at a 5% return over 30 years, comparing what's actually left after all applicable tax:

The RRSP grows to $133,029 pre-tax over the 30 years — a figure that checks out exactly against a straightforward 5% compounding calculation — then loses a large chunk to tax on withdrawal, landing at $69,176. The pattern that emerges: interest-taxed corporate investing loses badly to the RRSP, eligible dividends land close behind it, and capital gains — especially deferred, unrealized gains — tend to win over a long enough horizon, since they avoid the immediate high corporate tax rate on investment income entirely until actually sold.

The passive-income threshold that can tip the whole decision

There's a second reason to pull money out and use an RRSP that has nothing to do with the comparison above: a corporation's adjusted aggregate investment income (AAII) above $50,000 starts shrinking its small business deduction limit — $5 of reduction for every $1 of AAII, gone entirely at $150,000. Withdrawing surplus into an RRSP instead of leaving it to generate passive income corporately can keep the operating company's AAII low enough to protect the full small business rate on its actual business income.

What each option offers beyond the raw math

• RRSP — real creditor protection (federal bankruptcy exemption, plus most provinces), full control, mandatory conversion to a RRIF and minimum withdrawals starting at 71
• Corporate investing — no forced withdrawal age, more flexibility on timing, but corporate funds are generally exposed to business creditors unless routed through a holding company