2 Things That Should Be In Your Corporation

Today let us look at the two things that business owners own personally and should actually be owned corporately.


Personal Debt

Number one is your debt. If you have any personal debt, mortgages, credit cards, car loans, consider trying to move those into your corporation because then you’re able to write off the interest.

Now you may be asking, how do you write off the interest of a mortgage or personal mortgage?

We can use a strategy that’s called a debt swap.

Here’s an example of how it could work. You borrow money corporately, you pull it out of the corporation tax-free via the shareholder’s loan, and then you pay off your personal debt.

What you’re left with is the exact same amount of debt but instead of having it personally, it’s now in your corporation which allows you to write off the interest.

For example, on a $500,000 loan at 4%, those savings can be about $20,000 over the next 10 years.

If you don’t have a shareholders loan that allows you to withdraw money tax-free from your corporation, this strategy is still doable but we’d have to run the numbers to make sure that it makes sense for your specific scenario.


Life Insurance

The second thing that I most often see business owners owning personally when in fact it should be owned by their corporation is their life insurance. When you own life insurance personally you’re using

after-tax dollars to make the payments whereas if you own it inside your corporation you’ll be using before-tax dollars.


Let’s go through an example. Let’s say your insurance costs you $3,000 per year on the personal side. For you to net $3,000 you’re going to need to withdraw $4285 from your corporation assuming you have an average rate of 30% when it comes to your taxes to net you that $3,000.


Whereas if the insurance is owned inside your corporation, you only have to pay to $3,000 because you don’t have to convert your corporate dollars into personal dollars to make the payment.

Now you may be wondering what if I pass away and my life insurance gets paid out to my corporation? Will my beneficiaries have to pay taxes when they withdraw money from the corporation?


Not necessarily. When you pass away the death benefit creates a credit to your C.D.A (capital dividend account) and for my previous videos, you will know that any balance in your C.D.A is an amount that you can withdraw tax-free from your corporation.

Now depending on the type of insurance policy you own, whether it’s term insurance, permanent insurance, or a whole life or universal life policy, the credit that goes to your C.D.A balance will differ.

For most term policies the death benefit is going to basically be able to come out of the corporation tax-free because the credit to the C.D.A will be very similar. Whereas if you own a permanent policy your death benefit and the amount that gets credited with C.D.A, there might be a gap there in those first few years but as you age that gap will close, and eventually the death benefit will be able to come out of the C.D.A 100% tax-free.



To summarize today’s video, two quick strategies. If you have any personal debt, consider using a debt swap to move down to your corporation, and if you have any life insurance that you own personally consider moving that from your personal name to your corporate name because when it’s all said and done, you’re going to be able to withdraw that death benefit tax-free if you’ve already passed away through the C.D.A.

Colin Sabourin is a Winnipeg-based investment & financial advisor with Harbourfront Wealth Management. His specialty is working with farmers who are planning to sell or transition their farms within the next 5 to 10 years. 

Disclaimer: The views expressed are those of Colin Sabourin, Certified Financial Planner, and Investment Advisor, and not necessarily those of Harbourfront Wealth Management Inc., a member of the Canadian Investor Protection Fund.

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