There are two major aspects that impact corporate investing decisions:

1) tax implications
2) bookkeeping costs
There are no specific restrictions from the Canada Revenue Agency (CRA), therefore I will discuss here some key advice on how to get more out of your corporate investments, while striving to keep bookkeeping costs low and minimizing tax. I will discuss some considerations for various options.

Mutual Funds

1. These produce reinvestments which require regular bookkeeping postings, which adds to bookkeeping costs.
2. Mutual funds have multiple income types (Canadian dividends, foreign dividends, foreign tax withheld, interest, capital gains to name some). Thus, when recording income distributions, the type of investment income that has been distributed is unknown. Thus, we must wait until the following year to get the breakdown based on the T5 slips (due by end of Feb) or T3 slips (due by the end of March). This delays the corporate filings and, in some cases, delays the filings until after the due date of the return to calculate tax payable. This could result in paying late interest charges to CRA.
3. Each income type is taxed differently with Canadian dividends essentially being tax free, capital gains modestly taxed and foreign income and interest taxed at the higher rate.
4. For mutual funds in general, there is often a high management fee (some of which goes to pay trailer fees to investment advisors). This fee is imbedded in the return so your return is lower than what the underlying securities would suggest.
5. However, having said that, for smaller amounts, mutual funds might make sense from an investment point of view including diversification.
6. I would not recommend mutual funds for corporations because of the potential delay in filing a corporate T2, as I mentioned above. If your corporate yearend does not align with the calendar year, you may be left waiting for T-slips to arrive by the end of February (T5s) or the end of March (T3s) to finalize the company’s income for their fiscal year.

Canadian Stocks

1. This is the most tax preferred investment income since dividends paid on these investments can be essentially tax-free to the corporation, assuming it pays a dividend out to its own shareholder. The dividends paid to you from your corporation can also be a tax-preferred type (i.e., a lower tax rate) compared to regular dividends you already take from your corporation.
2. I would still suggest you avoid dividend reinvestments since these add to bookkeeping costs. Otherwise, the bookkeeping for these is mush easier than for mutual funds.
3. I would suggest picking 2 to 5 good dividend yielding Canadian stocks (for example, a couple of different banks, a telecommunication’s company and maybe a resource play) to minimize the tax liability and keep bookkeeping costs low.
4. If sold, the result is a capital gain. Half of the gain is tax-free while the other is taxed at a high rate. The tax-free portion can then be paid out to you, as the company shareholder, on a tax-free basis upon application to the CRA. This is called the Capital Dividend Account (CDA).
5. However, you might want to participate in the market outside Canada.

Foreign Stocks

1. The dividends received are taxed at the highest rate though the foreign tax you pay on them (withholding to a foreign jurisdiction like the US IRS) which can be used to offset some of your Canadian tax.
2. The bookkeeping is a little more complex compared to Canadian stocks but much less than mutual funds.
3. Again, we discourage reinvestment of dividends to keep bookkeeping costs low.
4. I would suggest six or so larger US companies that pay a dividend yield and are perhaps less risky than say Amazon or those highflyers.


Segregated Funds

1. These are essentially mutual funds. The benefit is that you can move around different funds without triggering any gains.
2. There might be the ability to retain distributions without triggering tax. Further investigation into this area would be necessary and further discussion with your financial planner would be best.
3. I would still recommend buying stocks directly rather than through mutual funds as you can reduce some of the management fees associated with mutual funds.

ETFs

1. ETFs act essentially like stocks in that they can be traded on the open market. They do not report like mutual funds (no T3s), but they do contain a basket of securities.
2. Again, reinvestments should be avoided to minimize bookkeeping costs.  Otherwise, they are similar to stocks for bookkeeping purposes.
3. One of the advantages to ETFs is that if you like a certain sector (say renewable energy), you can buy an ETF which holds different companies rather than having to select the individual companies yourself.

Life Insurance Policies

1. You can buy life insurance through your corporation. If the company is the beneficiary, the company pays the premiums. Though the premiums are not tax deductible, you are still using corporate funds rather than having to remove money from the corporation, pay personal tax, and then pay the premiums. Therefore, you save personal tax on the premiums.
2. If you pass, the benefits can flow through the corporation via that capital dividend account (CDA) referenced above. The pay-out is tax-free.
3. You can add an investment component very tax effectively to this by making the policy a whole life policy.
4. The tax on the investment income is deferred until withdrawn (when you are still alive) or avoided altogether when you pass away. Thus, it is a good way to invest without paying tax on the investment returns. Bookkeeping for this is minimal.

Real Estate

1. You can hold rental properties in your corporation, but the income (rent income less allowable expenses) is taxable at the highest corporate rate.
2. Bookkeeping is more involved for this.


Other Considerations

1. If you earn investment income (considered passive income) above $50,000, it can begin to increase the corporate tax rate on active business income earned in your company or those associated with your company (such as holding companies).
2. There are also liability concerns to have investments in your active business. For that reason, most business owners establish a second company, often referred to as a holding company, to reduce liability exposure.
3. In some cases, you will also require a family (or income splitting) trust if you expect that your active business could be sold for a profit.