Your company's spare cash is working hard. Mostly for CRA.
Once the business is doing well, money piles up inside the company. Invest it in a regular corporate account and the investment income gets taxed heavily. Earn too much of it, and it can raise the tax on your business income too. For money you won't need for a long time, there's another option.
The problem, in plain English
- Investment income inside a corporation, like interest, rent and investment gains, is taxed heavily up front.
- Once that income passes a certain level, the company starts losing its lower small business tax rate on its regular business income.
As of 2026The lower rate starts shrinking once passive income passes $50,000 a year, and it's gone at $150,000.
How permanent life insurance helps
- 1The company owns a permanent life insurance policy on you and pays the premiums from surplus cash.
- 2Inside the policy, the savings portion grows sheltered from tax, within limits set by the tax rules.
- 3That growth doesn't count as passive income, so it doesn't eat into the small business rate.
- 4When you die, the payout goes to the company tax-free, and most of it can flow to your family tax-free. (Tax-free at death)
Is this a fit?
Usually a good fit
- The company has surplus it won't need for many years
- You already take out what you need personally
- You want to leave money to family
Probably not yet
- You might need the money in the next few years
- The business needs that cash to grow
The honest fine print
- This is long-term money. Cancelling a policy early usually means getting back less than you put in, and any gain can be taxable.
- Premiums aren't tax-deductible.
- Some policy values are guaranteed and some aren't. I'll show you exactly which is which before you decide.
- It's not either-or. Most owners use this alongside regular investments, not instead of them.
Questions to take to your accountant
- 1.How much passive income is the company earning now, and how close are we to the threshold?
- 2.How much surplus will we realistically never need for the business?
- 3.Should my operating company or holding company own the policy?
FAQ
Can the company get at the money if it needs it?
There are ways, but each one reduces what's left for your family, and some trigger tax. Think of this as money for the long haul. If you might need it in the next few years, we'll talk about whether this fits at all.
Is this better than investing?
It's different. Investments give you flexibility. This gives you tax-sheltered growth and a tax-free payout for your family. Most owners do both.