Passive corporate investment income above $50,000 face punitive marginal tax rates approaching 50.17% in Canada, severely eroding retained earnings intended for generational transfer or executive succession.
The Exempt Policy Advantage
Under the Canadian Income Tax Act, cash value growth within an exempt life insurance contract accrues tax-sheltered. Upon the death of the insured life, net death benefits credit the corporation’s Capital Dividend Account (CDA), allowing tax-free distribution to Canadian resident shareholders.
Corporate Borrowing & Cash Surrender Value Leverage
Sophisticated holding companies can leverage policy cash values through third-party credit facilities, maintaining operational liquidity while keeping the death benefit protection intact.