Less tax drag on surplus
Policy growth isn't taxed each year and doesn't count toward the $50,000 passive income threshold, unlike a corporate investment account.
Corporate Insured Retirement Program (IRP)
The Corporate Insured Retirement Program
Your corporation funds a participating whole life policy, and in retirement you borrow against it to supplement your cash flow. It's a leveraged concept: it can suit the right owner, and it comes with real risks to weigh.
The Question
"My corporation has surplus sitting in taxable investments. How do I turn it into retirement income without a large tax bill?"
Corporate investment income is taxed at roughly 50% in Ontario, with part refunded only when taxable dividends are paid, and passive income above $50,000 a year can start to shrink the federal small business deduction. Paying yourself extra salary or dividends to fund retirement adds personal tax, often at high marginal rates.
A corporate Insured Retirement Program (IRP) uses corporate-owned permanent life insurance to shelter part of that surplus, supplement your retirement cash flow through borrowing, and leave more to your estate through the Capital Dividend Account.
At a glance
- Corporate-owned participating whole lifeFunded with surplus the business doesn't need
- Tax-sheltered growthNot counted as passive income under current rules
- Borrowing in retirementLoan advances are not taxable income
- Repaid at deathFrom the death benefit, with a CDA credit
- Leverage riskInterest, lender terms and dividend scales all matter
How It Works
Four stages, over decades
The corporation funds the policy
It owns a participating whole life policy on you and pays premiums from surplus it doesn't need.
Cash value builds
The policy's cash value, including any dividends, grows inside the policy with no annual tax on the growth under current rules.
Borrow in retirement
A lender advances money to you personally, using the policy as collateral. The corporation guarantees the loan for a fee.
Settle at death
The death benefit is paid to the corporation, and the amount above the policy's adjusted cost base is credited to the CDA. The corporation can pay capital dividends to your estate, which repays the loan and passes the balance to your heirs.
The Appeal
What it's designed to do
Supplemental retirement cash flow
Loan advances can supplement your retirement income without being taxed as income. Interest usually accrues and adds to the loan balance.
More left for your estate
The guaranteed base death benefit protects the business and your family. Through the CDA, much of it can reach your estate as tax-free capital dividends, which repay the loan before the balance passes to your heirs.
What to Weigh First
The risks of a leveraged strategy
An IRP only works if the policy, the loan and the tax treatment all hold up over decades. These are the points we stress-test with you and your accountant.
Borrowing costs
Loan interest usually accrues and compounds, and rates can rise. A larger loan leaves less for your estate.
Lender terms and collateral calls
The lender sets lending limits and can ask for more collateral or for repayment if the loan grows too close to the policy's value. Terms can change and aren't guaranteed to be available in future.
Dividends aren't guaranteed
Lower policy dividends mean lower cash values and less borrowing room. We illustrate at reduced dividend scales as well as the current one.
Shareholder-benefit risk
The corporation's guarantee of your personal loan must be properly structured, including a reasonable guarantee fee, or the CRA could treat it as a taxable shareholder benefit.
Long-term commitment
Cash values are lower in the early years, and surrendering the policy can create a taxable gain for the corporation.
Tax rules can change
The concept depends on current rules for exempt policies, policy loans and the CDA. Future changes could affect how it works.
Who It Can Fit
Owners who tend to be a fit
- Steady surplus for 10+ yearsMoney the business won't need
- Passive income near or above $50,000Or retained earnings of $250,000 or more
- A need for permanent coverageEstate, buy-sell or key person
- RRSP and TFSA already maximizedThis is a later layer of planning, not a first step
- Insurable, with a long-term viewAnd comfortable with borrowing in retirement
How We Work With Your Accountant
Your accountant leads the tax side
We model it
Illustrations for your corporation, including conservative dividend and interest-rate scenarios.
Your accountant reviews
They confirm the tax treatment, the guarantee fee and the fit before anything is recommended.
We implement
We coordinate the insurer, the lender and the paperwork, and keep everyone updated.
Common Questions
Questions owners ask about the corporate IRP
Under current rules, money you borrow is not taxable income. It is still a loan: interest usually accrues and adds to the balance, and the loan is repaid at death, typically by your estate from capital dividends funded by the death benefit. The guarantee fee and structure must be right to avoid a shareholder benefit.
The loan balance grows faster, which reduces your borrowing room and what is left for your estate. That's why we model higher-rate scenarios and plan a buffer between the loan and the policy's collateral value.
Yes. Lenders set loan-to-value limits and can require more collateral or repayment if the loan exceeds them, or if their terms change. A plan needs a way to respond, such as reducing advances or using other assets.
When a corporation guarantees a shareholder's personal loan, the CRA can treat the benefit of that guarantee as taxable unless the shareholder pays a reasonable fee. Your accountant sets the fee and confirms the treatment.
The loan is your personal debt, so it is normally repaid by your estate. The corporation receives the death benefit and can pay capital dividends to the estate, which then repays the lender. The order of events, including the lender's claim on the policy and the corporation's guarantee, must be set out in the documents and confirmed by your accountant and lawyer, because a corporation paying a shareholder's personal debt directly can create a taxable shareholder benefit.
A personal IRP is funded with after-tax personal dollars and is simpler. The corporate version uses corporate dollars and the CDA at death, but adds the guarantee, fee and shareholder-benefit considerations.
Related Guides
Strategies that often work together
Corporate-Owned Life Insurance
Permanent coverage owned by the corporation, with tax-sheltered growth and CDA planning.
Read the guideCapital Dividend Account (CDA)
How the CDA lets certain amounts leave a private corporation as tax-free capital dividends.
Read the guideIndividual Pension Plan (IPP)
A corporate-funded pension that can allow larger contributions than an RRSP for owners on salary.
Read the guideThis information is general in nature and is not tax, legal, accounting, insurance or investment advice. It is based on current Canadian tax legislation, which can change. Any strategy should be designed and reviewed with your accountant and legal advisors based on your circumstances. This is a concept, not a product or contract. It involves borrowing, and values above the policy guarantees, including dividends, are not guaranteed. Lending is subject to the lender's approval and terms at the time.
Corporate IRP planning in Burlington, Oakville, Mississauga and Hamilton
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