Corporate Estate Planning

Business owners often have private corporations with significant investment portfolios. The funds for these
corporate investment portfolios come from a multitude of sources, including retained earnings of an active business, growth on passive investments, and the sale of business assets.
The retained earning of active businesses often come through the ownership of holding company shares. The holding company, in turn, owns operating company shares. Since most inter-corporate dividends are tax free, no double taxation applies and an owner can retain earnings through their holding corporation.

Corporate Tax on Business Income

Private corporations are eligible for a low tax rate on active business income. This creates a significant tax deferral opportunity. For example, for active business incomes of under $400,000, the total corporate tax (CCPC 2009) is 16.5%, while the personal top marginal tax rate is 46.41%. This creates a deferral opportunity of 29.91%.

This deferral opportunity creates a strong incentive to leave profits in the corporation to maintain the tax deferral, while shareholders are left looking for ways to invest and protect this retained income. Corporations can invest this excess income in stocks, bonds, mutual funds, seg funds, real estate, income trusts, and other vehicles. Income on investment portfolios held in private corporations is taxed at the highest corporate tax rates.

When considering business income investment, there are two critical factors: The corporate tax rate on passive investment income is high, and shareholders are looking for ways to invest funds in the most tax-efficient manner.

The Corporate Estate Transfer Strategy

There is a solution that fits both of these needs, and it is called corporate estate transfer. Corporate estate transfer is a planning strategy for private corporations using corporate-owned life insurance to maximize corporate asset values transferred to the next generation.

This strategy is designed for corporations carrying on active business and earning excess cash flow for investment, as well as investment holding companies earning passive income from investments. Using this strategy gives you life insurance protection today, a tax-advantaged asset accumulation, potential to access asset values in retirement, and significantly higher after-tax estate values.

The corporate estate transfer strategy works like this:

  1. The corporation acquires a life insurance policy, where the corporation is the owner and beneficiary of the policy.
  2. Over time, deposits are funded from the excess corporate cash flow. An increase in policy value is not subject to taxation.
  3. If desired or required, policy cash values can be accessed to supplement retirement income. Tax implications depend on the method used to access the cash value
  4. Upon estate, the insurance proceeds are paid tax-free to the corporation, and are credited to the capital dividend account of the corporation. (CDA)
  5. The corporation can distribute tax-free capital dividends to shareholders using the CDA.


The proper corporate planning can result in substantial tax savings, and the corporate estate transfer strategy can provide you with significant benefits. For more information, contact us!