Reducing Tax with Corporate Life Insurance
Allan Madan, CA
Business owners looking to save tax, and protect their assets should read this. In this article, I will briefly explain how a corporate life insurance policy can be used to reduce taxes and creditor proof assets.
Tax-Free Death Benefit
The primary reason for purchasing life insurance is to provide for your family when you pass away. When a corporation owns a life insurance policy, the insurer will pay the death benefit directly to the corporation. The money received can then be paid to your estate as a tax-free dividend through the corporation’s Capital Dividend Accountant. Your estate will then distribute the proceeds to each beneficiary.
Tax-Free-Growth
Under the Income Tax Act, investments in stocks, bonds and mutual funds can enjoy tax-free growth within a universal life insurance policy. In fact, a portion of the insurance premiums paid by your company is directly invested in marketable securities inside the insurance policy.
Cheaper Corporate Dollars
To save tax your corporation should pay life insurance premiums instead of you. If you pay for the premiums yourself, then you have to do so from your personal after-earnings, which is not tax efficient.
Creditor Proofing Assets
Your company’s creditors cannot touch corporate savings inside a life insurance policy. This is a great way to protect your company’s assets from creditors.
So here’s the tip: Consider purchasing a life insurance policy through your corporation to save tax and protect assets. For more tips, have a look at this article on legal ways to reduce business taxes in Canada.
Disclaimer
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.
ABOUT THE AUTHOR
ALLAN MADAN
CA.CPA.CGA
Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.
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1. Which organization/business is not required to submit HST/GST return [For Example: Legal Service business, torturing, etc.] I need full list and a section of the ITA.
2. So far I know None for profit and charitable organization do not submit the HST return rather they claim HST rebate [5X 50%=2.5+8X 82% =6. 56, Total 9.06% remaining charged to purchase. My question what is rule for only “NPO” and “Charity and NPO”. I know more than 40% revenue should be government funded. Is this correct? If correct its applied for NPO” and “Charity and NPO” or both?
3. Self employed income split to the children. Is there any age restriction about the children age? Logically, I believe 5-10 ages are minor. Can income split allowed for them? ITA reference required. I paid to child age between 8-10, child labor question may be arise.
I am waiting for your reply,
Sincerely,
Atiqur Rahman
Hi Atiq,
It’s allowable to pay a salary to a minor, so long as the minor is of legal age to work in the province where he/she resides. There should be an employment agreement to support the nature of the work that the minor is doing. Also, the wage paid should be reasonable.