DID YOU KNOW . . . YOU CAN GET CAPITAL FROM YOUR COMPANY . . . TAX FREE, AND MITIGATE KEY EMPLOYEE RISK?
When insurance is being selected, a key consideration is whether it should be owned personally or through a corporation. Tax laws in Canada treat insurance contracts as exempt from taxation. As tax is your number one expense, tax and other implications should always be reviewed as part of the decision making process.
There are multiple situations in which a corporation may acquire an interest in a life insurance policy. While the corporation may “own” the policy, a separate decision still needs to be made with respect to the beneficiary designation. It is not uncommon to have a party other than the corporation (e.g., shareholder or employee) be the beneficiary under the policy.
Some common applications for corporate-owned insurance include the funding for buy-sell agreements, paying taxes at death, funding of post-employment or retirement benefits and for the provision of key-person protection in the event of a death, disability or critical illness to name a few. Corporate ownership of life insurance can be considerably more complex than personal ownership which makes having an insurance partner invaluable.
The commonly cited advantages of corporate ownership include the following:
- Lower after-tax cost of premiums,
- Non-taxable benefits to owners and employees,
- Increased flexibility in buy/sell situations,
- Possible collateralization and thus a source of cash for the corporation and its shareholders.
Given the advantages of corporate ownership, the associated tax implications need to be understood.
The two primary concerns for the corporation as owner of the policy will be the deductibility of the annual premiums and the treatment of the life insurance proceeds at death. A corporation may be able to deduct all or a portion of the life insurance premiums in two situations. The first instance could be where the policy is used as collateral for a mortgage or line of credit. The second is where the premium is considered to be a taxable benefit received in an employment or shareholder context.
The Shared Ownership Strategy
Click Here for a plain language CanTrust article on the Shared Ownership Strategy and learn how overfunding of corporate owned life insurance can create huge tax savings for shareholders and key employees. Then give us a call to find out how it could work for you.
Professional Advice The Shared Ownership Strategy warrants a complete review with a licensed insurance advisor, your accountant and in some cases, other professionals. CanTrust Financial specializes in guiding business owners through the selection of advisors, coverage, premium & benefit amounts, investment choices and other considerations including the tax implications to you, the shareholder and your corporation to ensure that your short and long term financial and business exit strategy goals are met. We have designed many successful strategies for business owners all over Vancouver, the Lower Mainland and Fraser Valley. Click below to see their Testimonials then give us a call to discuss your goals and how we can help you meet them, effectively and strategically.