Corporate Strategies

Strategy #1: Transferring a life insurance policy from a shareholder to a corporation

When a shareholder transfers a personally owned life insurance policy to a corporation, the tax consequences to the shareholder are generally dependent upon the policy’s cash value, its adjusted cost basis and whether the corporation gives consideration for the policy. The tax consequences to the corporation generally concern the policy’s new adjusted cost basis and other factors that might affect the capital dividend account calculation at death.

Why transfer a life insurance policy to a corporation?

Life insurance premiums are generally not tax-deductible. As a result, using corporate dollars that were taxed at a low business rate to pay insurance costs is a significant incentive for business owners to transfer a personally owned policy to their corporation. In addition, a corporation may obtain a credit to its capital dividend account (CDA) as a result of receiving a life insurance death benefit as a policy beneficiary. A corporation’s CDA enables it to pay tax-free capital dividends to its Canadian resident shareholders. Depending on the circumstances, the intended end recipient of the insurance death benefit is often left with the same amount of after-tax insurance money compared to the instance when the policy was owned personally.

Considerations for transferring a policy to a corporation is whether, if applicable, any provincially legislated creditor protection is worth losing and whether the policy will need to be transferred at some time in the future.


Strategy #2: Cascading life insurance – intergenerational wealth transfer

A tax-exempt life insurance policy with cash value can provide permanent insurance protection on a child or grandchild while giving you a tax-efficient way to grow and transfer your wealth to the next generation.

When you transfer a life insurance policy to your child or grandchild whose life is insured under the policy, there’s generally an automatic tax-deferred rollover. This is a unique feature of life insurance not available with marketable investments. For tax purposes, marketable investments are typically deemed to be disposed of at their fair market value when transferred to the next generation.

The cascading life insurance strategy is based on this tax-deferred rollover rule available for transfers to a policyowner’s child or grandchild. Cascading life insurance may also provide a tax-efficient transfer of wealth to future generations while

allowing continued control of the life insurance policy. The cash value growth within the policy (within prescribed limits) is also tax-advantaged compared to marketable investments, which may produce income and capital gains subject to tax.

How does cascading life insurance work?


  1. Parents or grandparents purchase a permanent life insurance policy on their child’s or grandchild’s life. 
  2. The parents or grandparents fund the policy with assets that they either intend to leave to the life insured (child or grandchild) as a legacy or assets that they want to transfer to the child for funding their schooling, a down payment on a house or other life events.
  3. The policyowner (parent or grandparent) names the life insured as the contingent policyowner to allow the tax-free ownership transfer of the life insurance policy to the child upon the death of the policyowner(s).
  4. As another option, the policyowner may transfer the life insurance policy to the child (life insured) while they’re alive so the child may access the policy’s cash value.


Strategy #3: Immediate financing arrangement

The immediate financing arrangement (IFA) strategy can be a solution to help cover your future tax bills, or fund other estate planning objectives, without disrupting the cash flow needed to continue growing your business or investments.

As an affluent business owner or individual, one of your primary objectives is to build the value of your company or your personal wealth – and you’ve been successful at this. Your business is doing well and generating excess annual cash flow. This cash flow is being reinvested back into business operations, or investments, supporting its sustainability and future growth.

While it’s good news when your business or investments are doing well and increasing in value, it also means a looming tax liability is growing. Any tax on the resulting capital gain must be paid when you or your spouse pass your business or investments over to the next generation. The IFA strategy can be a solution to help cover future tax bills, or fund other liquidity needs, without disrupting cash flow needed to continue growing your business or investment portfolio.

Benefits of the IFA

As a strategy for funding permanent life insurance coverage, the main benefits of the IFA are:


  1. Business and investment capital is largely intact. The funds used to pay the life insurance premiums are replaced by money borrowed from the bank. As a result, your business’ opportunity costs of obtaining permanent coverage on your life are minimized.
  2. Costs of obtaining permanent life insurance coverage are drastically minimized in the short-term (first six to seven years) and potentially may be significantly minimized over the remaining years of your life. The net out-of-pocket costs of the life insurance are effectively.