Corporate Asset Transfer

Do you:

• Retain excess cash flow within your successfully established corporation?
• Want to maintain surplus and enhance the value of your estate?
• Want to access the excess cash flow within your corporation for personal use?
• Want to reduce tax at your personal marginal tax rate?
• Need life insurance?

If so, then this strategy may be an opportunity for you.

What is the corporate asset transfer strategy?

The corporate asset transfer strategy provides a significant enhancement to the amount available for transfer to surviving shareholders than traditional taxable investments. Your corporation retains control of its capital in a tax-advantaged life insurance policy, while preserving more of the business assets for transfer to heirs than traditional investments where income is taxable every year.

How does the corporate asset transfer strategy work?

A corporate funded, tax-exempt permanent life insurance policy allows corporations to accumulate growth inside the policy, within certain legislative limits and without paying income tax on the growth. The growth inside the exempt policy wouldn’t be subject to tax or the refundable dividend tax-on-hand (RDTOH). It is possible that the company could access the policy cash values should the need arise. Part or all of the withdrawal may be taxable in some cases. The death benefit proceeds received by a private corporation from a life insurance policy in excess of the adjusted cost basis (ACB) can be credited to the capital dividend account (CDA). The corporation may distribute the dividend from the CDA tax-free to shareholders or to a shareholder’s estate.

Imagine the opportunity to keep more of your hard earned money for you and your heirs. Let me show you a possible better alternative. With one 20-minute presentation I can introduce you to a financial strategy that may increase your wealth and reduce your tax liabilities. The corporate asset transfer strategy is a great succession planning tool, but is not suitable for everyone. Please call me today to discuss if this strategy is right for you.

• All comments related to taxation are general in nature and are based on current Canadian tax legislation for Canadian residents, which is subject to change. For individual circumstances, consult with a tax advisor.
• An exempt life insurance policy, where the savings element is exempt from annual accrual taxation, is defined in regulations 306 and 307 of the Income Tax Act ( the Act). The Act provides that if a policy is to be exempt, the conditions set out in the regulations must be met.
• Any premium for a London Life universal life insurance policy that would exceed the estimated maximum premium is put in an account outside the policy and credited with interest. The interest is taxable to the policyowner and London Life reports the income to the policyowner and government each year.
• The information in this article is current as of November 2010.