1. Corporate estate transfer+
A tax-advantaged way to enhance corporate investments and access cash
Have business owners asked you about how they can:
Build a foundation of financial security for themselves, their families and their corporations?
Make their dollar go further using corporate money instead of personal income?
Leave a legacy for loved ones or a favourite charity?
Today’s tax environment favours retained earnings. Decreasing corporate tax rates have resulted in the phasing out of ‘bonusing down’. This means business owners are increasingly investing their savings in holding companies. But is this the best option?
Permanent life insurance may be a better option – one that can help them save money, build a foundation of financial security and can help them leave a legacy.
To show clients the advantages of using insurance compared to using investments, we’re going to look at the corporate asset transfer strategy as well as two of the accessing methods available – partial surrenders/cash withdrawals and policy loans.
This document is for wholesaler use only.
November 2016

2. Agenda Corporate estate transfer strategy A unique asset class
The strategy
The set-up
Client suitability
A unique asset class
Keeping more wealth
Accessing cash
Partial surrender/cash withdrawals
Policy loans
The tool
Navigating through the sales process
Case study
Agenda
Corporate estate transfer strategy
The strategy
The set-up
Client suitability
A unique asset class
Keeping more wealth
Accessing cash
Partial surrender/ cash withdrawals
Policy loans
The tool
Navigating through the sales process
Case study

3. Corporate estate transfer
A tax-advantaged way to enhance corporate investments
Corporate estate transfer
Corporations can use life insurance to help preserve their capital and enhance their net estate values all while taking advantage of tax-advantaged growth.

4. The strategy Protect business Leave a legacy
Immediate enhancement
Leave a legacy
Reduce annual taxes payable
Death benefit provides a credit to the capital dividend account
Ensure a smooth exit strategy
Buy/sell
Life insurance can help:
Protect business
Provides an initial death benefit that grows over time, and enhances the shareholder’s estate in later years
Can help prevent the unexpected from financially harming – or even destroying – the business they’ve worked so hard to build
Life insurance funds can be used to help pay debts and expenses to help keep the business going, find and train suitable replacements, assure creditors and suppliers that funds are available to meet commitments and reassure customers the business has the means to continue
Leave a legacy
Permanent life insurance can help maximize what’s left behind by reducing annual taxes payable and growing the corporation’s total net worth
The money provided to the named beneficiaries is tax free
Ensure a smooth exit strategy
Life insurance can help business owners do more with their money and fund their transition plan whether they want to sell their business, liquidate their business or pass it along to family
Let’s see how this strategy works.

5. The set up
Corporation is owner, premium-payer and beneficiary of the policy
When insured dies, corporation receives death benefit
This credits its capital dividend account
Corporation may elect to pay shareholders capital dividends
A private corporation resident in Canada owns a life insurance policy and is the named beneficiary.
When the insured dies, the corporation receives the death benefit, which credits its capital dividend account by an amount equal to the death benefit less the adjusted cost basis of the insurance policy.
If the policy is used to secure the indebtedness of the corporation, the corporation receives a credit to its capital dividend account on the same basis – even when the death benefit is paid directly to the creditor.
Corporations have the flexibility to determine when they elect to pay capital dividends.
The balance available in the capital dividend account may be reduced by the capital losses realized after receiving the death benefit.

6. Client suitability
Need life insurance and are interested in the benefits permanent life insurance offers
Have annual tax obligations from investments
Have a desire to reduce taxes on investment income
Want to leave a legacy
Want the option of accessing cash value from their life insurance policy
Clients who can benefit most from this strategy include business owners with:
Life insurance needs
Able to qualify and pay for life insurance
Annual tax obligations from investments
A desire to reduce taxes on investment income
A wish to leave a legacy
An interest in the option of accessing cash value from their life insurance policy

7. Business life cycle
We’ve already discussed which clients may be most suitable for this strategy, but in terms of the business life cycle and their needs, typically clients will be nearing or at the transfer phase.
People suitable for this strategy are nearing the transfer phase. They don’t necessarily have the same insurance needs as people in earlier stages; they are more focused on the insurance opportunity of estate planning while still having an insurance need. They have money they don’t need to access in their lifetime, which they want to transfer to next generation as tax-efficiently as possible, while still having access to the money if needed.

8. Growth. Access. Transfer
Businesses generating more cash than needed for day-to-day operations may wish to consider redirecting their assets from investments into a permanent life insurance policy. There’s also the opportunity to access cash value in the policy should the company need it.

9. Helping the client understand the versatility of insurance
Once you’ve identified the appropriate clients, you can help business owners understand how insurance is a unique asset class and how permanent life insurance can complement the fixed-income portion of a client’s financial security portfolio.
A unique asset class

10. Strategic diversification
Note – For more information, see Balancing to reduce risk (form ). This piece helps clients understand the value of strategic diversification and how life insurance can help diversify their portfolios.
Generally, business owners understand the importance of strategic diversification but they might not understand how permanent life insurance can complement their other assets.
To understand how, let’s look at the features of each asset class. This is an opportunity to review how each asset class works with other assets to provide clients with strategic diversification.
Different asset classes have different features. For example, each asset class has its own growth and risk components. By considering the differences between asset classes, you can create a plan specific to your clients’ needs, and strategically diversify their net worth to help manage risk.
   
Fixed-income investments
Secure, accessible
Returns are generally lower as risk is lower
Risk of returns being eroded by inflation
Taxed at highest marginal rate
May be subject to probate (estate administration tax) if any
Equity investments
Potential for higher returns and higher risk
Returns fluctuate with market volatility, political instability
Subject to capital gains tax
Death can trigger tax, without immediate liquidity to pay tax
If forced to sell in a down market, can lose money
Business, real estate, etc.
Value fluctuates with market
Investors usually rely on slow, steady growth
Limited access to capital, depending on how quickly and at what price goods can be sold
May be subject to capital gains tax
Death can trigger tax, without liquidity to pay tax
Life insurance
Tax-free death benefit is paid to named beneficiaries
Tax-advantaged growth within the policy, within prescribed limits, while living
Not subject to probate (estate administration tax) if any, if a beneficiary other than the estate is named
Death benefit and beneficiaries are kept private
Exception – In Saskatchewan, executors must disclose all known life insurance policies owned by the deceased, including segregated fund policies. They must list the insurance company, policy number, designated beneficiaries and the value at the date of death.
Potential creditor protection
Creditor protection depends on court decisions and applicable legislation
Can be subject to change and can vary from each province – it can never be guaranteed
Clients should talk to their lawyers to find out more about the potential for creditor protection for their specific situations

11. Keeping more wealth Investment growth can be costly
Corporations with more cash than needed for day-to-day operations may consider investing. Investing the excess cash is an option, but it may not be the best option. It can end up costing more than they thought because growth on investments may be subject to a higher corporate tax rate.
Keeping more wealth

12. Investment growth can be costly
Life insurance or investments? Investment growth can be costly.
Putting money into investments may be costing more than business owners think. In fact, it could end up costing them thousands each year because growth on investments can be subject to the highest corporate tax rate.
Permanent life insurance may be an effective solution for corporations looking for tax-efficiencies and options. Life insurance can help business owners accumulate more cash value during their lifetime and may allow them to leave larger estates to their shareholders than investments can.

13. Money lost to taxes Pre Tax After Tax Non-taxable Taxable
Proposed Solution
Non-Taxable
Non-taxable
Non-Taxable
Pre Tax
Let’s take a closer look at investments and tax.
Passive income held in taxable investments is taxed at the highest corporate marginal tax rate (varies by province). That means year after year, taxes are eating away at investment growth.
Instead of compound growth, this tax erosion can be seen as compound reduction. Every dollar paid to Canada Revenue Agency (CRA) has the potential to cost more than one dollar over time – that’s because the ability to reinvest that dollar is lost forever.
As the chart shows, taxes can dramatically reduce the net cash the corporation receives.
Although corporations may be paying more in tax than necessary, that doesn’t have to be the case. Business owners can reduce tax with permanent life insurance.
Example assumptions
Insured person: Fifty-year old male, non-smoker, standard rating with $25,000 annual deposit
Four per cent interest growth (100 per cent interest) non-registered
Estate Achiever, max 20, no additional deposit option
Province: Ontario
Corporate tax rate: 50 per cent
$702,052 initial death benefit
Annual premium: $25,000
Dividend option: Paid-up additions
Non-eligible dividend tax rate: per cent
The above example is for illustrative purposes only. Situations will vary according to specific circumstances.
Taxable
Taxable
Taxable
After Tax
The above example is for illustrative purposes only. Situations will vary according to specific circumstances.

14. Accessing cash Paying shareholder dividends or expanding business
If a corporation needs money to pay shareholder dividends or expand business, it can access the policy’s accumulated cash value, after enough cash value has been built up in the policy.
Two accessing methods include partial surrenders/cash withdrawals and policy loans.
Accessing cash

15. Accessing cash value
Can be a one-time or series of cash withdrawals to:
Supplement retirement income
Create another tax-advantaged account
Use for unexpected life events
Alternative to accessing income from corporate assets
Accessing cash value can be a one-time withdrawal, or a series of cash withdrawals. Withdrawing cash value may reduce the total death benefit while maintaining the initial base life insurance coverage amount.
Let’s compare partial surrenders/cash withdrawals and policy loans, as each one works differently.
If a client borrows against or withdraws money from the policy, it may reduce the policy’s cash value and death benefit and may be subject to tax.

16. Partial surrender/cash withdrawal
A partial surrender/cash withdrawal is contractually guaranteed, giving the corporation access to the accumulated values as long as the dividend cash value or account value is available and is not securing an existing policy loan. Since repayment isn’t allowed, any money borrowed or withdrawn from the policy reduces both the cash value and death benefit and may be subject to tax.
How it works:
A cash withdrawal is taken from the built-up cash in your policy. It’s contractually guaranteed and is available as long as it isn’t securing an existing policy loan. Since repayment isn’t allowed, cash withdrawals will affect the remaining cash available in your policy and the amount payable when you die.
If you withdraw all the cash value, the policy ends.

17. Policy loan
A policy loan is a contractually guaranteed agreement between the client and us, their insurance provider. The corporation can choose to repay the loan, or any unpaid loan and interest accrued will be deducted from the payout when the insured person dies. The loan does not reduce your coverage.
How it works:
The insurance company advances a loan, secured against the policy’s cash value. The loan minus the adjusted cost basis is taxable. When the loan is repaid, a tax deduction may be available, up to the previously taxable amount.

18. Accessing cash – methods and considerations
Accessing consideration
Partial surrender
(participating life insurance)
Partial withdrawal (universal life insurance)
Policy loan
Contractually guaranteed 
Taxation of amount accessed
Maintain full control of policy
Repayment ×
Tax deductions
Not applicable
Credit to the capital dividend account isn’t reduced at death
When considering what accessing method to use, client needs need to be assessed. What exactly is the client trying to achieve?
In order to determine what might be the most appropriate accessing method, the Plan comparison with accessing cash tool can prove useful.
For an expanded version of this table, complete with details, refer to the Accessing cash – methods and considerations PDF found in the Plan comparison with accessing cash tool’s input page.

19. Corporate estate transfer+
One tool. Three options.
When speaking to business owners about the Corporate estate transfer strategy, you can use the Corporate estate transfer+ tool.
The tool can tell three stories in one:
Corporate estate transfer
Corporate estate transfer and cash withdrawals
Corporate estate transfer and policy loans
Corporate estate transfer+

20. Corporate estate transfer +
Generates a customized report that illustrates:
How taxes can erode wealth
Tax-advantaged way to transfer assets from the corporation
The life insurance advantage
How life insurance stacks up
When the corporation breaks even
Comparing life insurance to investments
Corporate investments – detailed
Life insurance - detailed
Depending on whether you select a summary or detailed report, discussions in the report can include:
How taxes can erode wealth – tax grind
Tax-advantaged way to transfer assets from the corporation
The life insurance advantage
How life insurance stacks up
When the corporation breaks even
Comparing life insurance to investments
Corporate investments – detailed
Life insurance - detailed

21. Navigating through the sales process
Putting it into action
Navigating through the sales process

22. Meet John
As a recap of today’s conversation and to see just how you might be able to use this with a client, let’s meet John from Ontario.
John is a 50-year-old man, non-smoker, standard risk.
He’s a corporate business owner with an insurance need.
Case study

23. Identifying Client needs
What are your clients looking for?
As advisors, it’s our job to match client needs with the right product and strategy solution.
Identifying Client needs

24. Client needs
Corporation is generating more wealth than needed for day-to-day operations
Business owner is risk and debt-averse
Wants the ability to access cash and make repayment
When we take a look at John, we can see that:
His corporation is generating more wealth than needed for day-to-day operations
He’s risk and debt-averse
He’s interested in the possibility of accessing cash and the flexibility to make repayments

25. Corporate plan comparison with accessing cash
The tool allows you to:
Compare up to four term and/or permanent life insurance products
Compare up to three accessing cash methods using one product
Partial surrender/cash withdrawal
Policy loan
Collateral loan*
*Under Quebec law, the policy’s taken as security by way of a movable hypothec.
The Corporate plan comparison with accessing cash tool can help you identify what product suits John’s needs.
Since accessing cash is also something that may be of interest to John, the Corporate plan comparison with accessing cash tool can also be used.
You can choose a product and compare up to three accessing cash methods – Partial surrender/cash withdrawal, policy loan and collateral loan*.
*Under Quebec law, the policy’s taken as security by way of a movable hypothec.

26. Report output Corporate estate transfer+
Once we determined the right product and accessing cash method, we can use the Corporate estate transfer+ tool.
Report output

27. Money lost to taxes Pre Tax After Tax Non-taxable Taxable
Proposed Solution
Non-Taxable
Non-taxable
Non-Taxable
Pre Tax
Let’s take a closer look at investments and tax.
Passive income held in taxable investments is taxed at the highest corporate marginal tax rate (varies by province). That means year after year, taxes are eating away at investment growth.
Instead of compound growth, this tax erosion can be seen as compound reduction. Every dollar paid to Canada Revenue Agency (CRA) has the potential to cost more than one dollar over time – that’s because the ability to reinvest that dollar is lost forever.
As the chart shows, taxes can dramatically reduce the net cash the corporation receives.
Although corporations may be paying more in tax than necessary, that doesn’t have to be the case. Business owners can reduce tax with permanent life insurance.
Example assumptions
Insured person: Fifty-year old male, non-smoker, standard rating with $25,000 annual deposit
Four per cent interest growth (100 per cent interest) non-registered
Estate Achiever, max 20, no additional deposit option
Province: Ontario
Corporate tax rate: 50 per cent
$702,052 initial death benefit
Annual premium: $25,000
Dividend option: Paid-up additions
Non-eligible dividend tax rate: per cent
The above example is for illustrative purposes only. Situations will vary according to specific circumstances.
Taxable
Taxable
Taxable
After Tax
The above example is for illustrative purposes only. Situations will vary according to specific circumstances.

28. Corporate estate transfer with policy loans
Investments
Life insurance
Comparison age: 85
Cumulative cash invested or premiums paid
$500,000
Cash flow taken
Cumulative net cash flow to shareholder
$296,294
Net benefit at death to corporation less the loan balance and interest
$423,682
$861,424
Credit to capital dividend account $0
Net benefit to shareholder’s estate
$234,541
Internal rate of return
0.28%
3.54%
Cost per dollar of cumulative net cash flow plus net value at death
$0.94
$0.43
Let’s look more closely at John’s example.
Should the corporation access $296,294 of cash value from its insurance policy, at John’s death, the net value of the insurance policy is still worth $861,424 tax-free (net benefit at death to corporation less the loan balance and interest). That’s a total of $1,157,718 when it only cost him $500,000 in cumulative premiums.
If he were to take the same amount from his corporate investments, the net value at death is only $423,682. That’s a total of $719,976. When you look at the two, life insurance clearly outperforms investments when speaking to internal rate of returns.
Assumptions
Sex/smoker status: 50-year old, male, non-smoker, standard risk
Premium: $25,000 annually
Product: Estate Achiever, max 20, no additional deposit option
Invesment assumptions: 100 per cent interest, four per cent growth rate
Corporate tax rate: 50 per cent
Deposits: 20 years
Income
Starting age: 75
Years of income: 10
Policy loan:
Interest rate: six per cent
Maximum loan ratio: 90 per cent
Maximum loan age: 90
Shareholder non-eligible dividend tax rate: per cent
The example provided is not complete without the Canada Life illustration, including the cover page, reduced example and product features pages all having the same date. Read each page carefully as they contain important information about the policy.

29. Net value at death payable to shareholders estate
Summary
At age 85
$ In
$ Out
Net value at death payable to shareholders estate
$861,424
Based on output, do you have any clients that would be interested?
$500,000
$296,294

30. Next steps
Identify business-owner clients or prospects who may benefit from this strategy
Book an appointment with a small business owner
Download the tool from Canada Life RepNet™

31. Important considerations
Examples provided are not complete without the Canada Life illustration, including the cover page, reduced example and product features pages all having the same date. Read each page carefully as they contain important information about the policy. If the accumulation stays within prescribed limits, the cash value is only subject to income tax if it’s withdrawn. Borrowing or withdrawing money from the policy will reduce the policy’s cash value and the death benefit. Examples are for illustrative purposes only. Situations will vary according to specific circumstances. This material is for information purposes only and shouldn’t be construed as legal or tax advice. Every effort has been made to ensure its accuracy, but errors and omissions are possible. 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 legal or tax advisors.
An exempt life insurance policy is defined in regulations 306 and 307 of the Income Tax Act (federal). Generally, the Income Tax Act provides that the cash value accumulation is exempt from annual accrual taxation, provided certain conditions, as set out in the regulation, are met.
Illustration examples: Examples provided are not complete without the Canada Life illustration, including the cover page, reduced example and product features pages, all having the same date. Read each page carefully, as they contain important information about the policy.
This material is for information purposes only and shouldn’t be construed as legal or tax advice. Effort has been made to ensure its accuracy, but errors and omissions are possible. 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 legal or tax advisors.

32. Questions?