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TFSA beats corporate investments for most business owners: CIBC's Jamie Golombek

Withdrawing funds from your corporation to maximize TFSA generally results in more after-tax cash

TORONTO, Oct. 13, 2015 /CNW/ - Business owners who invest in a Tax-Free Savings Account (TFSA) rather than leaving surplus funds in their corporation generally end up with more after-tax cash, especially when the time horizon is significant, says Jamie Golombek, Managing Director, Tax & Estate Planning, Wealth Advisory Services at CIBC (TSX: CM) (NYSE: CM).

"Many small business owners still don't appreciate the significant benefit that TFSAs provide," says Mr. Golombek. "A TFSA is a great opportunity to earn tax-free investment income, especially now that the annual TFSA dollar limit stands at $10,000 for 2015. Leaving investments in the corporation means there will be taxation on any investment income earned, which may leave less after-tax cash in business owners' pockets at the end of the day."

Mr. Golombek discusses different investment scenarios for business owners in his new report TFSAs for Business Owners… A Smart Choice.

Tax deferral advantage on corporate investment income eroded by taxes

With corporate business income, a significant amount of tax is deferred until after-tax income is distributed in a future year, leaving business owners with more money to invest in their corporation than in their TFSA. This may yield a higher amount of pre-tax investment income in the corporation; however, investment income in a corporation is taxable, and taxes can significantly erode the benefit of investing the tax deferred amount over time.

"Taxes reduce the amount available for reinvestment as well as the total amount of investment income that may be accumulated throughout the years," says Mr. Golombek.

TFSA investment income completely tax-free, helping business owners build retirement savings

While the TFSA may have less investment capital since it is funded with after-tax dollars, most TFSA investors will still be left with more investment income because all TFSA income is permanently tax-free.

"The TFSA will outperform corporate investments in most cases over the long term, simply because no taxes are payable on the earnings in the TFSA," says Mr. Golombek. "The bottom line is you may come out further ahead by investing your hard-earned cash in a TFSA rather than leaving the surplus funds in a corporate account."

Mr. Golombek also recommends using the TFSA to help build retirement savings.

"Many business owners are so focused on building their business, they can neglect planning for their retirement," he says. "Business owners can set up a regular contribution plan to their TFSA to build their investment portfolio, and maximize the benefits of tax savings."

Since corporate and personal taxes vary for each type of income and from province to province, Mr. Golombek encourages business owners to seek professional tax and investment advice prior to making an investment decision.

About CIBC

CIBC is a leading Canadian-based global financial institution with 11 million personal banking and business clients. Through our three major business units - Retail and Business Banking, Wealth Management and Wholesale Banking - CIBC offers a full range of products and services through its comprehensive electronic banking network, branches and offices across Canada with offices in the United States and around the world. You can find other news releases and information about CIBC on our corporate website at


SOURCE Canadian Imperial Bank of Commerce


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