For more than a century, life insurance policies in Canada have offered powerful tax advantages—and we want to make sure business owners are using them to their fullest.
The core advantage is simple: death benefits paid from life insurance are tax-free for the beneficiary.
The Corporate Advantage: Tax-Free Transfers
For business owners, this benefit is amplified. When a corporation owns a life insurance policy and receives the death benefit, the proceeds are eligible for a special tax credit called the Capital Dividend Account (CDA) credit.
- This CDA credit is often nearly as large as the death benefit itself (frequently 90% or more of the payout).
- The credit allows the corporation to transfer money from the business to its shareholders completely tax-free.
Essentially, the business owner is using corporate dollars (which may be taxed at a lower rate than personal income) to buy a financial asset. This asset then pays out a large, near-tax-free amount to its shareholders.
How the CDA Credit is Calculated
The CDA credit is calculated based on a formula: the life insurance payout minus the policy’s Adjusted Cost Basis (ACB) (a value tracked by the insurer and the CRA).
While the exact credit amount changes over the life of the policy, it’s designed to ensure the majority of the death benefit flows through to shareholders tax-free.
A Stable Foundation for Wealth
These reliable tax advantages have been in place for over a hundred years, providing a stable foundation for financial planning.
Unity’s tax-efficient corporate insurance planning is built on this reliable framework. Allowing Unity to leverage these rules to:
- Protect the business
- Create long-term wealth
Ready to put corporate dollars to work? Talk to a Unity advisor about corporately owned life insurance today!