The result is a familiar trap: real wealth locked behind a tax gate, quietly raising your tax rate while it waits, with the largest bill saved for your estate.
How the strategy works
Your corporation owns the policy, pays the premiums, and collects the death benefit. Premiums are funded with corporate dollars taxed at the low business rate, often around 12 percent in Ontario, rather than personal dollars that first cleared a top rate above 53 percent. Growth inside an exempt policy is sheltered and generally does not count toward the passive income that erodes your small business deduction. At death, the corporation receives the benefit tax-free, and most of it can flow to your family as a tax-free dividend through the Capital Dividend Account. Same starting dollars, considerably more of them left for the family.
This is likely relevant if
- Your corporation holds retained earnings you do not need to run the business.
- Your passive investment income is approaching or past the $50,000 grind on the small business deduction.
- You are facing tax on your shares and surplus at death, and want the liquidity to fund it.
- You want corporate wealth to reach your family with as little tax as the rules allow.
Model it before you commit to anything
Doug Leyland and Jordan Matters are Chartered Professional Accountants, CPA, CA, and Private Client Estate and Succession Advisors. Bring your accountant. We will model whether a corporate-owned policy beats your taxable account, in numbers, before you commit to anything. See our process for how an engagement runs.
Prefer to go deeper first? Request the full guide and we will send you our detailed briefing on this strategy.
Common questions
Is corporate-owned life insurance tax deductible?
Generally no, the premiums are usually not deductible. The advantage is different and larger: the corporation funds the policy with lightly taxed dollars, the growth is sheltered, and the death benefit can reach your family tax-free through the Capital Dividend Account.
What is the Capital Dividend Account and how does the policy feed it?
It is a notional account that tracks the tax-free amounts a corporation can pass on to its shareholders. When a corporate-owned policy pays out, the death benefit minus the policy's adjusted cost basis credits the account, and the corporation can then pay a capital dividend the family receives tax-free.
Is corporate-owned cheaper than personally-owned life insurance?
The policy itself costs the same; what changes is the cost of the dollars that fund it. Corporate dollars are taxed at the low business rate before paying the premium, while personal dollars must clear the top personal rate first.
What happens to the policy if I sell the company?
The policy is a corporate asset, so it needs to be addressed in any sale, whether by transferring it out, retaining it in a holding company, or making it part of the transaction. Each path has tax consequences, so we plan for it from the start.
Can my holding company own the policy instead of my operating company?
Often yes, and frequently it is the better choice, keeping the policy away from the risks of the active business and simplifying a future sale. The right structure depends on your corporate setup, which we map out with you and your accountant.
