The Liberal government’s proposed changes to
Canada’s tax laws related to private corporations
have been a hot topic for the past several months.
While the government has made some amendments
to its proposed changes following the conclusion
of the 75-day consultation period in early
October, there is still a great deal of uncertainty and
unease regarding how the changes could impact
tax planning involving private corporations.
In their current form, the proposed changes have
significant implications for income sprinkling, holding
passive investments and converting regular
income into capital gains. However, one important
tax planning strategy involving private corporations
that is not subject to change under the new rules
is corporate-owned life insurance.
An attractive opportunity for tax-deferred growth
Purchasing life insurance on your life via a private
corporation is a way to harness the power of taxdeferred
growth. Instead of withdrawing surplus
funds from your corporation and investing after-tax
dollars, corporate-owned life insurance allows
you to put these surplus dollars to work before taxes
Driven by compound interest, the investment
component of your life insurance policy will have
the potential to grow into a significant nest egg.
At the same time, directing some of your corporate
surplus toward life insurance premiums will help
you save money on your corporate tax bill.
Passing on greater wealth to your loved ones
Of course, deferred tax doesn’t mean no tax. A corporate-
owned life insurance policy is still subject to
taxes at the time of your death. Nonetheless, this
strategy can help maximize the wealth that you are
able to pass on to your heirs. For example, depending
on your age at the time of death, some or all of
the death benefit under the life insurance policy
can be paid out to your heirs via the corporation on
a tax-free basis.
Meanwhile, the cash value of the policy will be
subject to capital gains tax upon your death. However,
since the investment component of your life
insurance policy will have benefited from tax-free
growth up to the time of your death, the cash value
of your policy after deducting capital gains tax can
still leave your estate well ahead in terms of overall
value compared to what you might have achieved
by investing after-tax dollars.
Making the most of corporate-owned life
At Rubach Wealth, we know that building and
preserving wealth for future generations is important
to you. Depending on your specific needs and
objectives, we believe that corporate-owned life
insurance can be a valuable tool for maximizing the
value of your estate while minimizing your corporate
If you’d like to learn more about how you can
benefit from this tax planning strategy, contact us
today to schedule a discussion.