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Pay less tax, keep more money with Corporate Life Insurance

While passive corporate investments can grow quickly and be accessed easily, here are some things to keep in mind:

  • You pay the highest corporate tax rate
  • You or your shareholders may pay an additional 30% in personal taxes if these investments are paid to you as dividend income.
  • You may pass on less money than intended to your estate, surviving shareholder and heirs.

Unlock your corporate investments.

Growth in a permanent corporate owned life insurance policy isn’t taxed as long as funds remain in the policy.  When you use all or some money tied up in passive investments to purchase this policy, your company benefits from the tax-deferred growth allowed in a life insurance policy.  The company may also pay less annual tax.

When you die, the corporation receives the proceeds tax-free.  The death benefit payment in excess of the adjusted cost base (ACB) of the policy goes to your company’s Capital Dividend Account (CDA).  The company can then distribute the dividend from the CDA tax-free to the shareholders or a shareholder’s estate.

Less money is lost to taxes, which means you have more funds to spend while you’re alive, and your estate (or shareholders) would receive more when you die.

Best Before 2017

Corporate owned permanent life insurance has always been an important player in Canada’s permanent tax shelter arena.  It offers an alternative to fixed equity investments that many corporations invest their passive assets into.

For a while however, there has been a desire by legislators to create tax rules that left less room for interpretation during the product design process as many government officials believed that the tax benefits of insurance were a tad too general and new legislation (Bill C-43) will take effect January of 2017.

The bottom line of these changes focuses on the calculation of a policy’s ACB .  Currently over a period of time,  the ACB will grind down to zero, allowing the death benefit to be paid out in full.   Once this new legislation comes in the ACB will never drop to zero, therefore there will always be an amount of tax payable upon dissolution of the policy.

The good news is that grandfathering will be available for insurance policies put into place before December 31, 2016.   The tax changes that occur after that time, will have no impact on these existing policies.

In addition to the upcoming legislation in Bill C-43, the new government of Canada has tabled  tax changes that will increase the top marginal tax rates effective January 2, 2016 throughout Canada.  In Ontario the top marginal tax rate on ordinary income will increase to 53.53% from 49.53%.  And the tax rate on eligible dividends will increase to 39.34% from 33.82%.  As successful corporate business owners continue to see their earnings taxed at a higher and higher rate, the value of using Life Insurance as a way to pay less tax and shelter earnings becomes increasingly more attractive.

Bottom line  – Pay less tax, keep more money

Corporate Owned Life Insurance has always been used by successful corporate business owners to insure they are maximizing their estate, paying less taxes, and keeping more of their earnings.  Even with the legislative changes staring in January of 2017, this strategy will still be beneficial.

Based on the grandfathering rules, and the new tax increases that pertain to higher income earners, looking at this strategy in 2016 makes sense.    Corporate owned Permanent Life Insurance will help you get more from your company’s assets and reach your long-term financial goals.

If you would like to see if your company would benefit from corporate life insurance, please call us today to review this concept.