www.TAX FREE MONEY. info
Getting the most tax free dollars from your Group and 
Corporate insurance Program
 
Ken Armstrong 
Insurance & Financial Services
Milton, Ontario 
905-878-0951
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Corporate Dividend Account Business Loan  for Owner

Barry age 46  is a business owner which is manufacturing and has combined  business loans for equipment and lines of credit  with his bank for the amount of $500,000,  the bank has offered and asked for proof of insurance as Barry is the key person to his company to cover this loan.  He has an option to purchase coverage through the bank or to purchase independently. Under the current income tax act  IT-430R3 it will be to Barry's advantage to purchase the coverage through  an insurance company  vrs the financial institution he may be dealing with.  This would create an additional $160,000  in tax free dollars  to the remaining  shareholders of the corporation, which in this case is Barry's family.   Barry is able to do this through his Corporate Dividend Account  and his deposits into his account  are considered tax deductible
under the current income tax act   IT-309R2.
 
Insurance through  a bank 
 an Insurance Co.
Loan Amount
$500,000 
$500,000
Tax Free Death Benefit Amount 
$500,000 
$500,000
Loan Amount after Death Benefit
$0 
$0
Credit to CDA
$0 
$500,000
Future tax free dollar savings  from CDA
$0 
$160,000    (32%)

Barry has considered that  for the next 20 years he will be in business, and as his business grows he will always have need for lending money for his business, as he uses other peoples money to make money for himself.  He hopes that by the time he is 65 the business would be sold.
 
 
Year
Monthly Deposit into account
 Tax Free Dollars Required
1
129.49
$500,000
2
129.49
$500,000
3
129.49
$500.000
4
129.49
$500,000
5
129.49
$500,000
6 -10
129.49
$500,000
11-15
129.49
$500,000
16-20
129.49
$500,000

Corrporate Dividend Account  CDA

  • CDA is a notional account
  • Proceeds of life insurance policy in excess of ACB credit CDA
  • ACB is nil if corporation is only the beneficiary of the policy (Rev Can interpretation letter)
  • Unused CDA can be used by surviving shareholders for future distributions
  • Creditor insurance through the bank or trust company does not qualify for CDA credit ( IT-430R3)

Key points for tax deductibility of  deposits

  • Loan interest must be deductible i.e., loan must be used for the purpose of gaining or producing income from a business or property
  • Lender is a bank, trust company, etc.
  • Collateral assignment is a loan condition
  • Borrower and policyowner must be the same
  • “Reasonable” deduction allowed

    • Lesser premiums paid and Net Cost of Pure Insurance NCPI