Frequently Asked Questions

Retained earnings left in cash or a basic investment account are often taxed more heavily than owners expect, both while they grow and when they finally come out. The right plan depends on when you'll need the money, how much you want to leave to family, and how your corporation is structured. I look at your full picture and show you options such as corporate-owned insurance, an Individual Pension Plan or a planned withdrawal schedule, side by side.

Most owners rely on salary and dividends, but there are other tools worth knowing about: the Capital Dividend Account, Individual Pension Plans, and corporate-owned life insurance, which can pass to your family tax-free through the Capital Dividend Account. The best mix depends on your income needs, your age and your estate goals. I work alongside your accountant or other advisors so the strategy fits your situation.

Your corporation owns a permanent life insurance policy on you and pays the premiums with corporate dollars, which can cost less than paying personally, because premiums are paid with corporate dollars taxed at lower corporate rates. Growth inside an exempt policy is generally not taxed each year. At death, the payout above the policy's adjusted cost basis can be credited to the Capital Dividend Account and paid to your family as a tax-free capital dividend.

The CDA is a notional account that tracks certain tax-free amounts a private corporation receives, such as the non-taxable half of capital gains and life insurance proceeds above the policy's cost basis. Balances in the CDA can be paid to shareholders as tax-free capital dividends. It's a valuable tool for moving wealth from a corporation to the next generation.

With an IFA, your corporation buys a permanent life insurance policy and then uses it as collateral for a bank loan, so the money can be reinvested in the business. Part of the loan interest, and sometimes part of the premium, may be tax-deductible. IFAs carry real risks, including interest rate changes and lender requirements, so they suit established, profitable corporations with a long-term outlook. IFAs are not suitable for everyone, and the policy and loan must be maintained for the long term.

It can. Once passive investment income inside your corporation passes a certain level, less of your active business income qualifies for the lower small business tax rate, and with enough passive income you can lose access to that rate entirely. Holding some corporate savings in tax-advantaged structures, such as exempt life insurance, can help keep your business income taxed at the small business rate.

An IPP is a defined benefit pension plan set up by your corporation for you, usually as an owner-employee drawing a salary. For owners in their 40s and older, an IPP often allows larger tax-deductible contributions than an RRSP, and the corporation makes the contributions. It does involve setup and ongoing administration costs, so I'll show you whether the numbers work for your situation.

If your business depends on you or a partner, it's often worth considering. Key person insurance pays the corporation if a critical person dies or becomes disabled, so the business can keep running. Buy-sell insurance funds a shareholder agreement, giving surviving partners the money to buy out a deceased partner's shares at a fair price.

A Health Spending Account lets your corporation pay for eligible health and dental expenses for you and your employees. Subject to CRA rules, the cost is generally deductible to the business and tax-free to the person receiving the benefit. For many owner-managers, it's a simpler and more flexible option than a traditional group benefits plan.