Smart Money Moves: How Alberta Business Owners Are Using Life Insurance to Save on Taxes
Let me share something interesting I learned while chatting with a few successful business owners in Calgary last week. They’ve been using a clever strategy that most Alberta entrepreneurs don’t know about – corporate-owned life insurance. Trust me, this isn’t your typical insurance talk.
Why Business Owners Are Taking Notice
Picture this: You’re running your business in Alberta, probably paying more taxes than you’d like, and wondering if there’s a better way. Well, there is, and it’s hiding in plain sight.
Here’s the Deal
Your business can actually own your life insurance policy. I know, sounds pretty basic, right? But here’s where it gets interesting: When your company pays for the insurance instead of you personally, you’re already ahead of the game. Think about it – your business pays the lower corporate tax rate on its active business income, while personal income is often taxed at significantly higher marginal rates. The difference between these rates creates an immediate advantage when paying premiums through your corporation.
The Good Stuff Nobody Tells You About
Remember that Capital Dividend Account (CDA) your accountant mentioned once? Here’s why it matters:
- When the insurance pays out, your company gets the money tax-free
- Most of that money can go into this special account (the CDA)
- The best part? You can take money out of this account without paying tax
I recently met a manufacturing company owner in Edmonton who set this up. He’s paying the premiums through his company instead of personally, taking advantage of the lower corporate tax rates. Since the growth happens tax-free inside the policy, he’s building a significant tax-advantaged asset for his business.
Making Your Money Work Smarter
The beauty of corporate-owned insurance lies in its versatility:
- Use it for business succession planning
- Create tax-efficient retirement strategies
- Protect your business’s key people
- Build corporate assets with tax-advantaged growth
- Access policy values through corporate loans when needed
Real Talk About Making This Work
If you’re thinking about trying this out, here’s what you need to know:
- Get the Structure Right
- Put the policy in your company’s name
- Make sure your company’s the beneficiary too
- Think long-term with permanent insurance
2. Make it Play Nice with Your Other Business Plans
- Line it up with your buy-sell agreement
- Figure out how it fits with passing down your business
- Keep it flexible for when things change
Why This Matters for Alberta Business Owners
Let’s be honest – business succession in Alberta isn’t getting any simpler. I was talking to a business owner in Red Deer who used this strategy to make sure his kids could take over the family business without selling half of it to pay taxes. Given Alberta’s business-friendly environment, strategies like this can be particularly effective here.
What Should You Do Next?
Look, I’m not saying this is right for everyone, but here’s what I’d suggest:
- Talk to your accountant about your current corporate tax situation
- Think about where your business is heading
- Run some numbers with an insurance advisor
- Get professional tax advice on implementation
- Keep checking in to make sure it’s still working for you
Bottom Line
Here’s what I’ve learned from talking to dozens of Alberta business owners: The ones who are really winning at the tax game aren’t doing anything fancy or aggressive. They’re just using smart strategies like this one that have been around forever but that nobody talks about.
Would love to hear what you think about this strategy. Have you tried something similar in your business? Drop a comment below or shoot me a message.
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Important note: Tax rates and regulations change regularly. Always consult with qualified tax and insurance professionals to understand the current rates and how they apply to your specific situation. The strategies discussed here are general in nature and may not be suitable for everyone. Your professional advisors can help determine what makes sense for your business.
