RRSP and TFSA for Incorporated Canadians: What the Math Looked Like for Me (2025 Edition)

A few years ago, my wife finished up her medical training and finally got the long-awaited staff position in medicine. As a physician, she earns her income through a Canadian-Controlled Private Corporation ("CCPC" or a "corp"). Up until that point, our financial situation was simple, but having a corp changes things, mainly from a tax perspective. The professional advice we got at the time was that it's best to leave your investments in the corp as it's not worth it pay the tax to take it out and then invest the money in an RRSP or TFSA. Given that this is coming from a tax accountant, I took that at face value and didn't think much more about it…for a while. I'm not a tax accountant but I am an investment professional so I know a thing or two about investment returns and the time value of money. The RRSP contribution deadline for the 2025 tax year is next Monday, March 2nd, 2026, and so I decided to do the math for myself and see what it looks like.

First, a quick overview on what RRSPs and TFSAs…

My Math: Why TFSA Is a No-Brainer (and RRSP Was Less Clear)

I took the time to model this up just out of interest, and I'm glad I did because this is what I found…

First, I wanted to know what the baseline is, so I calculated what the after-tax, post-withdrawal future value of leaving the money invested in corp. This involves a few assumptions: 1) my timeline is 20 years; 2) my expected rate of return is 7%/year; and 3) withdrawals are done with dividends, which is to be conservative. It's also worth noting that I live in Nova Scotia, which has the highest tax rates in Canada. Then, I applied the same assumptions to 3 scenarios with 1 partial exception with the RRSP, which is more complicated.

TFSA wins: Contributing money to a TFSA beat leaving money in the corp by a wide margin. If we invest $1,000 in a TFSA, we'll only start with $370 to invest after paying taxes on active business income and dividends on withdrawal. However, this would grow to $1,431 over 20 years and we don't have to pay any tax in the future.

Corp: Compare this to leaving money in a corp where you would pay tax on active business income this year and then start with $890. That would turn into $1,712 but then we would have to pay tax on dividends of 59% on dividends, leaving us with $710 after-tax.

RRSP — it depends: Lastly, calculating the RRSP was more complicated because you pay yourself a salary from the corp to make the RRSP contribution room. Then invest $180 (18%) of per $1,000 in the RRSP and factor in that the notionally the balance ($435) is still invested in the corp just to compare apples-to-apples. When it's all said and done, in 20 years your after-tax, post withdrawal future value is on every $1,000 invested would be $665 — just slightly less than if you just left the money invested in the corp but close.

However, what this doesn't factor in is that your corp has something called a Capital Dividend Account, and this is why an RRSP for 2025 still makes sense for us. A Capital Dividend Account is a notional tax account that tracks certain tax-free surpluses inside a Canadian private corporation so they can be paid out to Canadian-resident shareholders as tax-free capital dividends. The balance in every corp is different so it depends, but in the case that you don't have to pay tax on the withdrawal this year and then we're getting tax-free (TFSA) and tax-deferred (RRSP) investment returns, then why not?

One downside to consider is that this may trigger taxable gains in the corp when you sell your current investments. That is not included in my analysis as it's too variable. However, another benefit that I also didn't include is the Refundable Dividends Tax on Hand, which tracks refundable tax paid on passive investment income and certain dividends that can be refunded to the corporation when it pays taxable dividends. This is a related concept to the Capital Dividend Account, but not the same. The reason why I'm bringing it up is because the tax assumptions I made for myself were designed to be the most punitive and see if it still works. Many incorporated professionals seek the advice of a tax accountant because there are several ways to reduce your tax burden that are perfectly legal.

Final Thoughts

This is simply how I approached the decision to help my wife with our joint investments (both corporate and personal). There are also other considerations that I haven't mentioned here, but again, I'm not a tax accountant…I just was curious to know how the compounding of returns would offset the upfront tax. Everyone's mix of salary/dividends, tax bracket, and corporate assets is different.