This new course is included as part of your ILScorp LIFE/A&S Course Subscription

In this course, learn how in certain cases Split Beneficiary Planning allows for cash extractions (free of dividend tax) from the corporation in excess of actual policy premiums; how a separate and well drafted Split Beneficiary Agreement is required, including a defendable pricing model likely using NCPI as the source cost; and that specialized legal and tax advice may be needed before implementing such planning.

Part 1 – Corporations & Insurance

Part 2 – Disruptions to Corporate Owned Insurance

Part 3 – Agreements on the use of Insurance with Corporations

Part 4 – The Pricing Models

COURSE MATERIAL SAMPLE:

COPORATE INSURABILITY

1.Key Man Insurance.  In the event of the death of a key employee, a corporation could sustain material financial hardship.  Key Man Insurance provides funding to assist the corporation maintain working capital balances in the transition period after death.

2.Shareholder Agreements.  Shareholder agreements govern actions between shareholdings in the event of the death of a shareholder.  Some agreements obligate the corporation to redeem the shares in what is called a “Corporate Redemption or Corporate Repurchase”.  Insurance in this context provides the needed funds to repurchase the deceased’s shares.

3.Loan Offset Insurance.  Sometimes creditors of a corporation will ask that key people are insured.  Should they pass away, the insurance is used to repay corporate loans.

4.Buy-Out Insurance.  Similar to shareholder agreements, corporations that transition owner-managers (key people) will often insure one or both parties (acquirer and/or purchaser) so that financial exposure during the acquisition period is covered by insurance.

Corporate Funded Insurance – Benefits

While Living:

  1. A corporation (with an insurance interest) is allowed to pay insurance premiums.
  2. Corporate paid premiums are normally a “non-deductible expense” (called an “add-back” on the corporate tax return).
  3. This allows payment of insurance AFTER corporate income tax but BEFORE personal dividend tax.

Example: Personal Ownership

An insurance policy with $1000/yr premiums needs to be paid.  We assume the policy owner is also a shareholder of a corporation.

Should that policy be owned and paid for outside of the corporation, the following series of transactions would be required:

  • The Corporation deducts $1923 as a Salary Expense (T4) from its tax return
  • With $1923 in Salary, Personal Tax Will Be Required
  • At a 48% Tax Rate this means $923 in Tax is owing

Therefore, the total cost of the insurance is $1923 of corporate resources.

Example: Corporate Ownership

An insurance policy with $1000/yr premiums needs to be paid.  We assume the policy owner here is a corporation.  Following are the required transactions:

  • The Corporation reports $1163 as Income On its Tax Return
  • At a 14% Small Business Tax Rate, $163 in Corporate Income Tax will be Paid
  • This leaves $1000 of corporate funds to pay the insurance premium.

Therefore, the total cost of the insurance is $1163.  Corporate owned insurance is a more effective place to pay premiums!

This new course is included as part of your ILScorp LIFE/A&S Course Subscription

Click here to learn more about this course!

Credit Hours: 2

Credit Type: Life/A&S

Credit #: AIC 47765 MB 29960

Accrediting Provinces: BC, AB, SK, MB, ON

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