^Blog RRSP’s vs Holding Corps: A Tax Trap to Avoid

As a Canadian business owner, one of the most common questions we hear is: “Where should I be investing my money – RRSPs, TFSAs, or inside my holding company?” While RRSPs can be a useful tool, putting too much of your wealth into them may create a costly retirement tax trap.

The Hidden Cost of Overusing RRSPs

Recently, we met a very successful family who had diligently built up millions of dollars inside their RRSPs. On the surface, it looked like smart retirement planning. But here’s the problem: at age 71, RRSPs must convert into a Registered Retirement Income Fund (RRIF), and by age 72 you must begin mandatory withdrawals, whether you need the income or not.

For this family, those withdrawals will add up to a significant amount. On top of that, they will also receive Canada Pension Plan (CPP), Old Age Security (OAS), and taxable income from non-registered investments. The result? A retirement income they can’t control and a hefty tax bill every single year.

Their holding company, on the other hand, had only a few hundred thousand dollars – leaving them with
limited flexibility. If more of their wealth had been invested in the corporation, they would have been able to “turn the tap on and off” as needed, controlling taxable income in retirement.

Why Business Owners Need a Balanced Plan

This situation highlights a key difference between investment advice and holistic financial planning. Many business owners work with investment advisors focused on returns, but miss the bigger picture of long-term tax efficiency.

At Three60 Wealth, we believe RRSPs still have a place in your plan, but balance is essential. A holding company not only allows greater flexibility, it also supports business succession, estate planning, and intergenerational wealth transfer. Without a coordinated strategy, you risk “tripping over dollars to pick up dimes”, chasing small gains while overlooking the much larger cost of taxes.

If you are a business family within 5–10 years of selling your company, now is the time to build a plan that ensures your wealth works for you, not against you.

Learn more at Three60wealth.ca

Authored by: Jason Nagel, Three60 Wealth