4 Reasons to Draw from Your Corporation Before Taking CPP or OAS

If you're a business owner heading into retirement with a nest egg inside your corporation, you may be wondering when to start pulling money out — and how that lines up with your government benefits like CPP (Canada Pension Plan) and OAS (Old Age Security).

Here's the bottom line: delaying your CPP and OAS while you draw down corporate funds could save you a lot of money in taxes — and avoid some major headaches down the road.

Let’s break down why.

1. OAS Clawback Can Wipe Out Your Benefits

Old Age Security is income-tested. If your net income is too high, the government claws back a portion — or even all — of your OAS.

Here's the kicker: when you draw non-eligible dividends from your corporation, they get grossed-up for tax reporting. That means your “net income” for OAS purposes is artificially inflated, even if your real cash flow isn’t.

So if you take CPP and OAS early, and then add dividends on top? You may lose a big chunk of your OAS to clawback. Drawing down your corporation first, and delaying OAS, helps reduce that risk.

2. CPP + Dividends = Tax Trouble

CPP income is fully taxable — and stacking it on top of dividend income can push you into a higher tax bracket. That means:

• More tax on your dividends
• Higher OAS clawback
• Less flexibility in managing your income year to year

Delaying CPP until age 70 not only gives you a bigger benefit (up to 42% more), but also lets you create a smoother, more controlled drawdown from your corp first.

3. Simplify Your Life (and Save Money on Tax Returns)

Keeping your corporation open in retirement just to hold passive investments comes with a cost: annual tax filings, bookkeeping fees, legal compliance, and possibly higher audit exposure.

If you can strategically wind down your corp — and pull out funds in a planned way — you could:

• Eliminate your corporate tax return
• Save thousands in professional fees
• Simplify your estate planning

Clean and simple beats complex and costly, especially in retirement.

4. Your Estate Could Face a Triple-Tax Trap

When you pass away with assets still inside your corporation, your estate faces three levels of taxation:

1. Capital gains tax on the growth of assets inside the corp
2. Capital gains tax on the shares of the corporation
3. Dividend tax when your heirs take money out

That’s a big tax burden that can erode the legacy you’ve built.

By drawing out corporate assets strategically during retirement, you reduce the risk of this triple-tax whammy — and give your estate a much cleaner handoff.

Final Word

There’s no one-size-fits-all answer — but if you’ve built up wealth inside a corporation, it’s worth taking a serious look at drawing it down before activating CPP or OAS.

Done right, it’s not just tax-efficient — it’s strategic peace of mind.