Maximizing Returns: TFSAs Empowering Business Owners’ Financial Growth

For entrepreneurs with a corporate structure, deciding what to do with any excess profits can be a tricky task. Investing in a Tax-Free Savings Account (TFSA) can be an effective way of preserving post-tax cash for future use – especially when it comes to long-term objectives. The most popular opinion is that leaving the money within the business permits tax deferral benefits. 

Nonetheless, by withdrawing corporate funds and transferring them into a TFSA account in Canada as opposed to a non-registered account, it could prove beneficial in making sure you make the most of this saving instrument.

Funding TFSA Contributions with Corporate Income

Before adding funds from your company into a TFSA, it is necessary that you remove the money from your TFSA for business. This withdrawal amount is determined by variables including individual and corporate taxation levels, eligibility for the small business deduction, as well as how profits are classified in the industry.

Since 2009, Canadian residents aged 18 and above have had the privilege of having their TFSA contributions room increase annually. There is no TFSA contribution limit to how much-unused room you can roll over into the following years. In 2022, first-time contributors will be able to add up to $81,500 in total for that year.

As an example, making a deposit of $6,000 in 2022 requires your corporation to make at least $13,076 of SBD Income within Ontario’s jurisdiction. After the corporate tax rate is applied ($1,595), you will get a non-eligible dividend of $11,481 on which personal tax must be paid – amounting to $5,481.

Alternatively, if your corporation earned $13,457 of General Income in Ontario in 2022, the corporate tax would be $3,566, resulting in $9,891 for an eligible dividend. After a personal tax of $3,891, you would have $6,000 for your TFSA contribution. Figure 2 illustrates the required TFSA business income and dividend distribution for each province and territory in 2022 to contribute $6,000 to your TFSA after corporate and personal taxes.

Example of investing in a TFSA or corporation using SBD Income

Let’s look at an example that compares using SBD Income in Ontario in 2022 to invest within a corporation TFSA.

Suppose your corporation earned $13,076 of SBD Income. In Figure 1, we saw that after paying a corporate tax of $1,595, there would be $11,481 remaining in the corporation. Your choices for this after-tax SBD Income include the following:

1. Investing in a TFSA: You may withdraw $11,481 from your corporation in 2022 as a non-eligible dividend, pay a personal tax of $5,481, and have $6,000 in your hands, which could be invested in a TFSA.

2. Investing in your corporation: You have the option to leave the $11,481 in your corporation in 2022 for future investments. When eventually distributed to you as a non-eligible dividend, a personal tax of $5,481 would be paid, leaving you with $6,000. The final amount received after corporate and personal taxes remains the same, whether investing through a TFSA or via the corporation, assuming no changes in tax rates.

There are, however, two main differences between investing corporately compared to via a TFSA account in Canada. 

The first difference is the tax deferral of $5,481 when investing through the corporation. This deferral allows for a higher initial investment amount in the corporation ($11,481) compared to the TFSA ($6,000).

With a higher investment capital in the corporation, it has the potential to generate more investment income than a TFSA if both earn the same pre-tax rate of return.

Taxes on investment income

The second difference is that corporate investment income is taxable, while TFSA business income is a tax-free savings account. Figures 4 through 7 below demonstrate how taxes on corporate investment income can diminish the advantage of tax deferral over time.

The question is, would you be better off with:

1. Corporate investments, which have an initial higher amount for investment but produce taxable income, or

2. Personal investments, which have a lower initial amount for investment but produce non-taxable income?

Let’s continue with our Ontario example, assuming a 5% rate of return on investments and 2022 tax rates, to illustrate how the tax deferral and taxes would affect the amount available with corporate investments in the short and long term, compared to a TFSA.

Investing in a TFSA: All types of income

A one-time $6,000 contribution in a TFSA with a 5% return rate would generate $300 of tax-free investment income after one year. Reinvesting income within a TFSA over 30 years would accumulate a total income of $19,900 (in addition to the initial capital of $6,000). TFSAs provide equal opportunity for tax-free savings account income in every province and territory.

Investing in your corporation

Retaining after-tax SBD Income in the corporation provides $11,481 for investment, generating $574 of income in the first year (5% return). This is 91% higher than the $300 TFSA investment income due to the larger initial capital. However, the corporation is taxed on its investment income, reducing available funds for reinvestment and total accumulated income. At year-end, if the remaining income is distributed as a dividend, personal tax is also payable.

The after-tax investment income from corporate investments varies based on corporate and personal taxes. For example, if the corporation earned $574 (5% of $11,481) of interest income, the after-tax investment income would be $241. This is lower than the $300 available in a TFSA. Over 30 years, corporate taxes would reduce the reinvested amount, resulting in a total after-tax investment income of $10,600 (approximately 47% less than a TFSA’s $19,900). In summary, for 5% interest income and 2022 tax rates in Ontario, investing in a TFSA is consistently better than corporate investing over 30 years.

Canadian eligible dividends

If your corporation invests in Canadian stocks earning $574 (5% of $11,481) of eligible dividends, the after-tax investment income would total $348,12, exceeding the $300 available in a TFSA after one year. Corporate taxes have a lesser impact on eligible dividends compared to interest income. 

Over 30 years, the after-tax investment income would be $16,800 (approximately 16% less than a TFSA’s $19,900). Initially, corporate investments yield slightly higher after-tax investment income with a 5% eligible dividend income and 2022 tax rates for Ontario. However, the TFSA outperforms corporate investments in the long run, starting after approximately 16 years. 

The crossover point depends on the achieved rate of return on the underlying investment.

Capital gains are realized annually

If your corporation generates $574 (5% of $11,481) of capital gains in the first year, the after-tax investment income would be $408, surpassing the $300 available in a TFSA after one year. Over 30 years, the after-tax investment income from a corporation would be $21,900, slightly more than the $19,900 available from a Tax-free Savings Account. Assuming 5% annual capital gains and 2022 tax rates for Ontario, corporate investing would yield similar after-tax investment income as a TFSA over 30 years. However, in the long term, the TFSA would outperform corporate investments, with the crossover point depending on the achieved rate of return.

Deferred capital gains

When capital gains are realized annually, corporate taxes are paid each year, reducing the available after-tax investment income for reinvestment. However, when capital gains are deferred, corporate taxes are only paid when the after-tax investment income is distributed as a dividend at the end of the year(s).

At a 5% rate of return, the first-year capital gains would be $574 (5% of $11,481). If distributed at the end of Year 1, taxes would amount to $166, resulting in $408 of net investment income with corporate investing. Without annual corporate taxes, the corporation would accumulate significantly higher total capital gains over time. 

After 30 years, the net investment income to the shareholder would be $27,100 (36% higher than the $19,900 in a TFSA). With 5% deferred capital gains and 2022 tax rates for Ontario, corporate investing consistently outperforms a TFSA.

More about the key differences between corporate investments and a TFSA

Tax deferral

The examples demonstrate the substantial tax deferral advantage of SBD Income, allowing for larger capital investment in a corporation compared to a TFSA for business. In 2022, tax deferral on SBD Income ranged from 32.5% (in Nunavut) to 42.8% (in Newfoundland and Labrador) across provinces and territories.

In contrast, the tax deferral on General Income in 2022 was significantly lower, ranging from 17.5% (in Nunavut) to 27.0% (in Ontario). The lower tax deferral with General Income reduces the likelihood of corporate investments outperforming a TFSA when initially earning General Income compared to SBD Income.


The impact of various factors on choosing between a corporation and a TFSA for investment is evident. In general, corporate investments are likely to result in lower returns compared to a tax-free savings account, particularly when TFSA business income is not eligible for the small business deduction or investment income is heavily taxed.

However, for deferred capital gains, corporate investments consistently outperform a corporation’s TFSA account in Canada, although deferring all capital gains may not be practical for most investors.

For business owners aiming to optimize long-term investment returns, especially with a combination of interest, eligible dividends, and capital gains, withdrawing funds from the corporation to maximize TFSA business income is recommended instead of keeping the funds within the corporation for investment.


Q: Can I open a TFSA for my business?

A: No, a Tax-Free Savings Account (TFSA) is designed for individuals and cannot be opened directly for a business. However, business owners can personally contribute to their TFSA using their after-tax business income.

Q: What happens to a TFSA when the owner dies?

A: Upon the owner’s death, the TFSA is generally transferred to the designated beneficiary without tax consequences. The beneficiary can continue to enjoy the tax-free growth and withdrawals from the TFSA.

Q: What is the TFSA limit for 2023?

A: The TFSA contribution limit for 2023 is $6,000. This limit applies to eligible individuals who are residents of Canada and have attained the age of majority.

Q: Can I have multiple TFSA accounts?

A: Yes, you can have multiple TFSA accounts as long as you don’t exceed your total contribution limit. Each individual’s contribution room is calculated separately, allowing for multiple accounts across different financial institutions.

Q: Can a corporation have a TFSA?

A: No, a TFSA is intended for personal use and cannot be held directly by a corporation. However, a business owner can use their after-tax business income to contribute to their personal TFSA account.