Q: What's a corporate account?

A: It's the answer to a question as old as the CRA.

And that question is this: If you pay corporate income tax on the money your small business earns and you don’t want to pay the personal income tax on the money that’s incurred once you withdraw those earnings, how do you avoid leaving profit to stagnate in a corporate bank account that earns 0.01% interest?

The answer, of course, is to open a corporate investment account!

Among the instruments available to you through a corporate investment account: GICs, mutual funds, stocks and bonds, and ETFs.

What are the pros? Corporate investment accounts are great for businesses that are making more money than they immediately know what to do with, or any business that has cash reserves.

When you open a corporate investment account it allows your business to do with its money what anyone would want to do with their money: invest it. This means it can grow instead of leaving it in a bank account where it will eventually be eaten by the beast known as inflation.

These accounts are especially good for businesses that are prone to good years and bad years. Why take profit at a time you’re earning a lot when you can wait for a slow year when you’ll be charged a lower income tax rate?

Is there anything to be careful about? Yes. Taxes. Using a corporate investment account can make your tax situation a bit knotty. The government knows that these accounts can be used as tax shelters, so they charge you a hefty additional tax to dissuade you from using the account to dodge your tax payments.

The math gets complicated: The tax rate on withdrawals from corporate investment accounts is extremely high, but it gets reduced when you file your personal income taxes so that you only pay what you would have paid if you had invested the money outside of your corporate account. When using an account like this, know that you could be in for some exciting accounting—if such a thing exists.