How to Pull Money Out of Your Corporation Tax-Free?
If you’re a business owner whose company is profitable and growing (or transitioning) and you want to pay less in taxes and keep more for your loved ones, you will want to pay attention to corporate owned life-insurance.Why? Because it can help you pull money out of your business tax-free (or close to it) while you’re alive and at death.
What most business owners don’t know is that under CRA tax rules, having your company purchase life insurance allows for two tax-advantages: first, the cash inside the policy accumulates tax-free and their is no maximum you can put in. For those who may want access to their money for lifestyle or retirement purposes, the investment accumulating in the policy can be accessed tax-free indirectly from your corporation. Another tax-advantage is that the death benefit is paid out as a tax-free capital dividend, whereas other assets (such as cash, real estate or investments) are paid out subject to tax at time of death.
We came across the article (attached below) published in the Financial Post that highlights a few examples of how corporate-owned life insurance as a strategy can be powerful for business owners. In one example, it compared investing in traditional equities (such as real estate and the stock market) to investing in life insurance. And while most people think life insurance is a conservative, low-risk investment, you’d be surprised to learn that it compared favourably.
We often suggest to clients they consider this strategy as a compliment to their investment portfolio, as life insurance can be a great longer-term investment. If you’d like to have more of conversation on how to use corporately-owned life insurance as a vehicle to extract money out of your business tax-free, please contact us.
Jeff Devlin, CFP (2010-2022)
Elementus Wealth Management Inc.