Leave it in the corporation
Money stays in the company, but passive investment income may be taxed at higher corporate rates, and retained earnings still need to be addressed over time as part of a longer-term plan.
For Incorporated Business Owners
Tax Advantage Strategies for Incorporated Business Owners
An educational overview of structures that can support tax-efficient corporate wealth planning, retained earnings, estate planning, and insurance-based strategies, depending on your individual circumstances.
The Challenge
The challenge for incorporated business owners
Incorporated owners often hold significant value inside the corporation. As retained earnings grow, passive investment income can be taxed at higher rates, and moving funds to personal hands adds another tax layer. Retirement, estate, and succession planning all interact with these decisions.
The structures on this page are educational starting points only. Each one needs to be carefully designed for your specific situation and reviewed by qualified tax, legal, accounting, and insurance professionals before any decisions are made.
The Trade-Offs
The two-path tax problem
Incorporated owners usually face a choice between leaving funds in the corporation, moving them to personal accounts, or layering in strategic corporate insurance planning. Each path has its own considerations.
Take it out personally
Dividends or salary move funds into personal hands, but each method triggers personal tax. The path you choose can shape what ultimately reaches your personal wealth or family.
Consider strategic corporate insurance planning
Insurance-based structures can sit alongside the corporation in a tax-conscious way. When properly designed and reviewed by qualified professionals, they can support estate liquidity and corporate wealth planning.
Five Core Strategies
Five planning structures, explained in plain language
Each structure below is described at a general educational level. None of them are recommendations. Suitability, structure, and implementation depend on your individual circumstances and require review by qualified tax, legal, accounting, and insurance professionals.
A registered, defined benefit pension plan that an incorporated business can establish for an owner or key employee. The corporation contributes to fund a future pension for the individual, with contribution levels set through actuarial calculation.
- Best suited for
- Incorporated business owners and certain key employees, typically with consistent T4 income from the corporation and a long-term retirement horizon.
- Key planning benefit
- Designed to support more structured corporate-funded retirement saving, with potential for larger annual contributions than an RRSP at certain ages and income levels.
- Important caution
- Subject to actuarial requirements, ongoing administration, and CRA registration rules. Suitability and contribution levels must be reviewed with qualified actuarial, tax, and accounting professionals based on your individual circumstances.
A supplemental retirement plan that allows a corporation to set aside funds for a key person's future retirement. Contributions are tracked through a refundable tax mechanism that holds a portion of contributions and investment earnings with the CRA in a refundable tax account.
- Best suited for
- Higher income incorporated owners or executives who want to build retirement assets above standard registered plan limits.
- Key planning benefit
- Designed to support tax-conscious supplemental retirement planning above standard registered plan room, depending on income, structure, and individual circumstances.
- Important caution
- Complex rules, ongoing compliance, and significant professional setup are required. Must be reviewed with qualified tax, legal, and accounting professionals before implementation.
A permanent life insurance policy owned and paid for by a corporation, insuring the life of an owner or key person. Cash value can grow inside the policy on a tax-sheltered basis under current rules.
- Best suited for
- Corporations with retained earnings looking to combine long-term protection with tax-conscious corporate wealth planning.
- Key planning benefit
- At death, the proceeds may allow a portion to flow through the Capital Dividend Account on a tax-efficient basis, depending on structure and circumstances. Can support estate liquidity and corporate wealth planning.
- Important caution
- A long-term commitment with underwriting, structuring, and ongoing policy management considerations. Must be reviewed with qualified insurance, tax, legal, and accounting professionals.
A planning arrangement where a critical illness insurance policy is shared between a corporation and an individual. Each party pays its respective portion of the policy costs, with the benefits allocated according to the arrangement.
- Best suited for
- Incorporated owners and professionals who want critical illness coverage combined with a structured return of premium feature, where available on the chosen policy.
- Key planning benefit
- Designed to provide health-event protection during working years, while supporting a tax-conscious return of premium structure if no claim is made, depending on the policy and the arrangement.
- Important caution
- Each party's share of premiums and benefits must be properly documented and reviewed by qualified tax, legal, and accounting professionals to support the intended treatment.
Two related strategies that use the cash value of a permanent insurance policy as collateral for a third-party loan. They can be used on the corporate side, the personal side, or both, depending on the planning goal.
Immediate Financing Arrangement (IFA)
A corporation funds a permanent life insurance policy and borrows from a third-party lender using the policy cash value as collateral. The borrowed funds can be redeployed back into the business or into other planned uses.
- Best suited for
- Corporations with strong cash flow, lender appetite, and a long planning horizon who want both permanent insurance protection and continued working capital.
- Key planning benefit
- Designed to support tax-conscious corporate planning by keeping capital working in the business while permanent insurance is funded over time.
- Important caution
- Sensitive to lender terms, interest rates, policy performance, and CRA scrutiny. Must be carefully designed and reviewed with qualified insurance, tax, legal, and accounting professionals.
Insured Retirement Plan (IRP)
A permanent insurance policy is funded over time and, in later years, the policyholder borrows against the policy cash value to supplement retirement income, while the policy remains in force. The death benefit is eventually used to repay the loan.
- Best suited for
- Higher income individuals or business owners who have maximized other registered options and want a supplemental, tax-conscious income source in retirement.
- Key planning benefit
- Designed to support a tax-conscious supplemental retirement income stream, depending on policy performance, interest rates, and lender terms.
- Important caution
- Sensitive to interest rates, policy performance, and lender terms. Must be designed and reviewed with qualified insurance, tax, legal, and accounting professionals before implementation.
Quick Reference
Strategy comparison at a glance
An educational summary only. Suitability and design always depend on your individual circumstances and require review by qualified professionals.
| Strategy | Planning Focus | Best For | Typical Use Case | Professional Review Needed |
|---|---|---|---|---|
| Individual Pension Plan | Registered, corporate-funded retirement | Incorporated owners and key employees | Corporate pension funding beyond standard RRSP room | Actuarial, tax, accounting |
| Retirement Compensation Arrangement | Supplemental retirement above registered limits | Higher income owners and executives | Funded retirement beyond IPP and RRSP | Tax, legal, accounting |
| Corporate-Owned Life Insurance | Tax-efficient corporate wealth and estate liquidity | Corporations with retained earnings | Long-term protection with potential Capital Dividend Account flow | Insurance, tax, legal, accounting |
| Split Dollar Critical Illness | Health-event protection with shared cost structure | Owners and professionals | Shared corporate and personal critical illness coverage | Tax, legal, accounting |
| Immediate Financing Arrangement | Permanent insurance with collateralized lending | Corporations with strong cash flow | Funding insurance while keeping capital working | Insurance, tax, legal, accounting |
| Insured Retirement Plan | Future supplemental income via policy lending | High income individuals and owners | Loan-based supplement to retirement income | Insurance, tax, legal, accounting |
Why LG Financial Group
Coordinated planning, in plain language
Corporate planning structures rarely live in isolation. Insurance, investments, retirement, and estate planning all need to work together so the corporate and personal sides of your plan support each other.
- More than 20 years of insurance and wealth planning experience
- Coordinated approach across insurance, investments, and corporate planning
- Plain-English explanations of complex structures
- Long-term client relationships, not single-transaction work
We work alongside your accountant, lawyer, and other professional advisors so each piece of the plan is reviewed by the right specialists.
This information is general in nature and should not be considered tax, legal, accounting, insurance, or investment advice. Strategies should be reviewed with qualified tax, legal, accounting, and financial professionals based on your individual circumstances.
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