8 – Corporate Tax Treatment of Policy
What We Covered: Corporate Tax Treatment of Whole Life Policies
Why This Is Important for Business Owners
- Many accountants lack proper training on whole life insurance as an asset.
- Mishandling by tax professionals can increase your audit risk.
- It’s essential to align with professionals open to learning and guided by your coach.
- Policies offer tax-exempt growth if treated correctly. Mishandling can trigger penalties or CRA scrutiny.
(starts at 00:45 mins)
Clarifying Key Concepts for Your Tax Professional
- Premiums: A transfer from one asset (cash) to another (cash surrender value); not an income statement expense.
- Policy Loans: Not liabilities; reduce cash surrender value and increase cash.
- Loan Repayments: Reverse of above, increase CSV, reduce cash.
- Dividends: Used for paid-up additions, increase CSV, no taxable event.
- Interest on Loans: Only paid interest (not accrued) may be deductible if used for business or handled cautiously.
(starts at 02:20 mins)
Tax Deductibility: Can vs. Should
- Technically possible to deduct some premiums or interest, but not often advisable.
- Example: A $100,000 policy at 6.5% interest might yield only $744 in tax benefit at 12% corporate tax rate; not worth audit risk.
Using this asset class to simplify, not complicate, your financial life is often wiser.
(starts at 06:59 mins)
Audit Risk and CRA Compliance
- Missteps in handling can trigger penalties or audits.
- CRA limits deductions, and deductibility requires proper forms like the T221 from the insurer.
- Accrued vs. paid interest must be understood clearly. Only interest paid qualifies.
(starts at 08:42 mins)
Best Practices and Year-End Prep
- Take a screenshot of your Values Tab on Dec 31st (or year-end) to share with your tax pro.
- Go to Documents Tab for loan records (e.g., 2024 policy loans).
- These help with audit prep and corporate T2 return adjustments (Schedule 1).
(starts at 09:54 mins)