*Advisor
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CORPORATE RETIREMENT
STRATEGY
ADVISOR GUIDE
TABLE OF CONTENTS
Introduction to the corporate retirement strategy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Identify the opportunity - target markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Policy ownership: corporate or personal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
CRS mechanics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
A. Corporate borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
B. Shareholder borrowing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
CRS and Eos. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
CRS presentation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
CRS planning considerations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
CRS suitability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Selecting a policy type – participating whole life or universal life. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
CORPORATE RETIREMENT STRATEGY 1
INTRODUCTION
Introduction to the corporate retirement strategy
Permanent cash value life insurance policies, such as participating whole life and universal life are attractive
to corporations for the potential tax-free death benefit and the tax-preferred cash accumulation benefits
they offer. Permanent life insurance plans that build cash value can provide short- and long-term planning
opportunities for the corporation.
The corporate retirement strategy (CRS) provides the corporation with valuable life insurance protection on a
key person or shareholder and the opportunity to access policy values tax-free immediately or in the future.
Clients should seek their own independent tax and legal advice to ensure this strategy meets their needs.
How it works
A corporation owns, pays premiums and is the beneficiary of a tax-exempt life insurance policy. When
the policy has accumulated cash values, it can be pledged as collateral in exchange for a series of tax-free
loans from a third party lender. Currently, the Income Tax Act (Canada) doesn’t treat these loan proceeds as
income, so they can be potentially received tax-free.
In Quebec, using a life insurance policy as collateral involves the use of a movable hypothec. Like a
collateral assignment, the movable hypothec doesn’t involve the transfer of policy ownership. It provides
security for the loan by giving the lender rights in the policy to the extent of the loan balance.
CRS can be implemented in one of two ways:
Traditionally, the strategy is used years after policy purchase, once the policy has accumulated significant
cash values. The corporation can use loan proceeds to finance business opportunities or to supplement a
key shareholder’s retirement income. Sun Par Protector or moderate- to heavily-funded SunUniversalLife
or Sun Limited Pay Life plans may be suitable for situations requiring higher longer-term policy values.
More recently, collateral assignments early in the life of the contract are used to provide funds for
business purposes. The higher early cash values available with Sun Par Accumulator or well funded
SunUniversalLife plans make ideal product selections for this application.
The strategy can provide a corporation or a controlling shareholder with a stable source of potentially
tax-free income, but there are a number of considerations to examine closely before implementing this
strategy. Clients should speak to their own legal and tax advisors to help ensure the CRS is suitable for their
unique situation.
2 CORPORATE RETIREMENT STRATEGY
IDENTIFY THE OPPORTUNITY – TARGET MARKETS
The CRS may be suitable for business owners or key shareholders who:
have a significant ownership interest in a Canadian controlled private corporation,
need permanent corporate life insurance and are in good health,
have corporate surplus and want to benefit from the tax-preferred growth of an exempt life insurance policy,
want access to cash for business opportunities now or in the future, and
have maximized their registered retirement savings plans (RRSPs) and Tax-Free Savings Accounts (TFSAs)
and want additional flexibility.
There are a number of reasons a corporation would want to access cash values from a life insurance policy.
These include building a pool of tax-preferred capital to take advantage of business opportunities, to expand
the business, to provide a source of additional income for key employees, or for emergency purposes.
POLICY OWNERSHIP: CORPORATE OR PERSONAL
There are several benefits to a corporation owning an exempt life insurance policy compared to
personal ownership.
Corporate tax rates. If a corporation qualifies for the small business tax rate, its tax rates will typically be
less than an individual’s personal tax rate. As a result, the after-tax cost of the insurance may be lower if
it’s purchased on a corporate basis. In addition, using corporate funds to pay for a corporate owned life
insurance policy may result in an income tax savings versus paying dividends directly to the shareholder
and having them pay the premium on an individually owned policy.
Tax-preferred income. Passive corporate investment assets attract income tax at the top marginal rate and
do not qualify for the small business deduction. Moving taxable investments to a tax-exempt life insurance
plan can help reduce corporate income taxes. This is also true for corporate investments with deferred
capital gains. Upon disposition, the deferred gains on these investments may result in significant taxes,
reducing the net estate value.
Access to tax-free dividends. Part or all of the death benefit from a corporately owned life insurance
policy creates a credit to the capital dividend account (CDA). The CDA is a notional account1 used to track
tax-free surpluses accumulated by a private corporation. Proceeds in excess of the policy’s adjusted cost
basis (ACB) can be credited to the CDA and paid out as a tax-free capital dividend2 to the shareholder’s
estate. The balance of proceeds can be paid to the shareholder’s estate as a taxable dividend. As a result,
the net estate values provided by life insurance can exceed those provided by taxable investments.
Value of corporate owned shares. Transferring corporate funds to a life insurance policy can help reduce
the fair market value of the corporation for the purpose of calculating capital gains taxes at death. The
cash value of a life insurance policy is included in the fair market value calculation, however the death
benefit received by the corporation may be much higher. This may exclude a significant portion of the
corporate assets from being included in any taxable capital gain at death.
1
Created under section 89 of the Income Tax Act (ITA).
2
An election under subsection 83(2) of the ITA must be made to treat the dividend as a tax-free capital dividend.
CORPORATE RETIREMENT STRATEGY 3
CRS MECHANICS
For the CRS to work effectively, the proposed insured must be in good health and able to qualify for life
insurance coverage. Once the appropriate amount of permanent life insurance has been determined by
assessing the needs of the corporation, payments are made to the policy that will accumulate significant
cash values. The corporation is the owner and beneficiary of the policy.
Once policy values have accumulated, they can be assigned as collateral for a series of loans from a third
party lender. The CRS may be structured in one of two ways:
Corporate borrowing
Shareholder borrowing
Both methods use the corporate owned life insurance policy as collateral (movable hypothec in Quebec)
however, either the shareholder or the corporation may borrow funds directly from the lender. The tax
consequences will vary depending on the structure selected. The decision whether to use corporate or
shareholder borrowing will depend on the individual circumstances of the corporation at the time that
loans are needed.
Corporate borrowing
The corporation applies for the loan and receives the proceeds directly. The corporation can use these
funds for business purposes or pay them to the shareholder as a taxable dividend.
Corporation
Assigns insurance
Financial institution
loans money
Pays income
(taxable dividend)
Shareholder
At death, the tax-free death benefit first pays the outstanding loan plus accumulated interest. The
corporation may post the entire death benefit to its CDA, minus an amount equal to the policy’s ACB. An
amount equal to the CDA can be paid as a tax-free capital dividend to the estate of the shareholder. The
fact that some or all of the death benefit may have been used to pay off the loan balance does not affect
the corporation’s right to pay a capital dividend. Any distribution that the corporation cannot pay as a
capital dividend can be paid as a taxable dividend (to the extent of retained earnings).
The CRS plays an important role for corporations that need access to a source of funds for business
purposes. Plans with an emphasis on higher early cash values, such as Sun Par Accumulator or a well funded
SunUniversalLife, are suitable for this market. In circumstances where the loan proceeds are being used to
earn income from a business or property, interest on the loan may be tax deductible.
4 CORPORATE RETIREMENT STRATEGY
Shareholder borrowing
In this scenario, the shareholder applies for the loan and receives the proceeds personally, on a tax-free
basis. The shareholder can use these funds to supplement retirement income or for whatever purpose they
choose. The corporation assigns the policy to the financial institution as collateral security for the loans.
This structure will usually result in a taxable shareholder benefit, based on either the interest rate savings that the
borrower achieves by having the corporate guarantee, or a benefit that’s equivalent to a guarantee fee that would
otherwise be charged. This risk may be reduced by having the shareholder pay a guarantee fee to the corporation
for the right to use its policy as security for the loan. The facts of each case should be examined to ensure the
structure is tax effective.
Corporation
Assigns insurance
(guarantee fee)
Shareholder
Financial institution
loans money
When the shareholder dies, the estate should be willing to provide additional collateral to the lender so
that it can release its interest in the policy. This could be added as a provision to the loan agreement. After
the lender releases its interest in the policy, the death benefit can be paid entirely to the corporation.
NOTE
Lenders may be reluctant to give up their interest in the policy without additional guarantees
provided to secure the loan. However, if the death benefit flows directly from the insurer to the
financial institution to repay the shareholder’s loan it may cause the loan reimbursement to be
considered as a benefit to the shareholder and taxed accordingly under section 15(1) of the ITA.
CORPORATE RETIREMENT STRATEGY 5
Corporation
Receives insurance proceeds (tax-free)
Pays tax-free
capital dividend
(excess over ACB)
Estate
Repays loan
(Estate assigns additional
collateral at death)
Financial institution
The corporation may then post the entire death benefit to its capital dividend account, minus an amount equal
to the policy’s adjusted cost basis. An amount equal to the capital dividend account may then be paid tax-free to
the estate of the shareholder. Once funds are received, the shareholder’s estate can pay the outstanding loan and
receive a return of its collateral. Any amount remaining can be paid as a taxable dividend.
Advisors must pay special attention to this type of arrangement and ensure the implementation will not
trigger negative tax consequences, since the repayment of the loan would have otherwise been done using
a capital dividend that is non-taxable by definition.
Corporate or shareholder borrowing – which should I illustrate?
On the surface, shareholder borrowing may appear to be the more attractive option. This is because
loan proceeds are paid directly from the lender to the shareholder and not through the corporation as a
taxable dividend. While this may seem advantageous, there are tax considerations that may apply when a
shareholder uses a corporate asset for their benefit.
Because the shareholder is getting the benefit of a loan that is secured by the corporate owned life
insurance policy, there is a risk that a taxable shareholder benefit could be assessed. To help reduce this
concern, a guarantee fee could be paid to the corporation.
Upon death, the shareholder’s estate may be deemed to have received a taxable benefit if the loan
balance is paid directly from the corporation instead of from the estate of the shareholder. The
shareholder’s estate will need to have collateral acceptable to the lender available immediately after the
shareholder’s death.
Special care should be taken when considering the CRS using shareholder borrowing. Clients should consult
their legal and tax advisors.
6 CORPORATE RETIREMENT STRATEGY
CRS AND EOS
The CRS compares the performance of an exempt life insurance plan to an alternate investment using
the same stream of payments and income. CRS is available on your Eos software and is available with the
following permanent life insurance products:
Sun Par Protector
Sun Par Accumulator
SunUniversalLife / SunUniversalLife MAX
Sun Limited Pay Life
Once the appropriate amount of permanent life insurance has been determined you can set up the
product illustration on Eos.
From the left hand margin, select the ‘concept’ icon. Select corporate retirement strategy from the
dropdown menu.
The corporate retirement strategy consists of three input tabs:
Concept assumptions
Corporate details
Alternate investments
Concept assumptions tab
This tab deals with the assumptions surrounding the third party loan:
Income: enter a specified loan amount or choose ‘maximized’. This will calculate the maximum annual
loan available and assumes that the loan balance reaches the maximum collateral value at life expectancy.
Sun Par Protector and Sun Par Accumulator presentations provide the opportunity to run the concept at
the current dividend scale, current minus 1%, or current minus 2%.
CORPORATE RETIREMENT STRATEGY 7
Corporate details tab
This tab deals with assumptions about the corporation:
Borrowing type: choose from corporate borrowing or shareholder borrowing
Company type: choose from holding company or operating company
Alternate investments tab
This tab lets you customize the return and allocation characteristics of the alternate investment. Users have
the option of switching to a basic investment allocation.
TIP
Use the basic investment allocation with clients who don’t need an overly sophisticated asset
mix for comparing the performance of the alternate investment.
8 CORPORATE RETIREMENT STRATEGY
CRS PRESENTATION
The CRS presentation consists of both required and optional reports designed to give prospective clients a
professional, high level description of how the strategy works and how the strategy will perform under the
assumptions the client and advisor select.
Corporate retirement strategy – an overview
This report summarizes how the CRS works and includes details on target markets. The presentation will
reflect the borrowing type selected corporate borrowing or shareholder borrowing.
Assumptions
A summary of the insured(s), the life insurance policy, tax rates, the alternate investment and the bank loan are
provided.
Comparison of values report
This report compares the net estate value of the CRS to the net estate value of the alternate investment.
Corporate retirement strategy details report
This report provides an in-depth look at the values behind the strategy itself, including the CDA credit
resulting from the life insurance policy death benefit and the loan balance expressed as a percent of policy
cash value. An additional collateral needed column also appears. This amount is the additional collateral
a lender may require if the ratio of the accumulated loan balance to the policy’s cash surrender value is
greater than the limit set in the loan agreement.
Alternate investment details report
This report provides an in-depth look at the values behind the alternate investment including the
cumulative refundable dividend tax on hand and cumulative CDA credits.
Loan interest sensitivity analysis
This report provides clients with a look at how a higher interest rate will impact the performance of this
strategy. The report will compare strategy performance at the rate selected from the input versus a loan
interest rate that is one per cent higher.
Corporate retirement strategy – key considerations
This report provides a summary of some of the important items that should be examined prior to
implementing this strategy.
Interest deductibility report
This report will appear when interest deductibility is selected.
Detailed alternate investment assumptions
This optional report will outline the asset allocation and investment return characteristics of the alternate
investment.
Key terms
This optional report provides a summary of some of the key terminology that is used in the corporate
retirement strategy presentation.
CORPORATE RETIREMENT STRATEGY 9
CRS PLANNING CONSIDERATIONS
The CRS is an excellent way to illustrate the benefits of leveraging an exempt life insurance policy to
provide a source of tax-free income in the future. Clients should understand there are many variables that
contribute to the amount of income that may be available from the policy. Even a small change in the
assumptions used in the CRS presentation can have a significant impact on future values.
One of the primary risks faced by the borrower is that the outstanding loan balance may exceed the
maximum collateral value outlined in the loan agreement. When this occurs, the policy owner must provide
additional collateral or pay off a portion of the loan balance. If the policy owner is unable to restore the
agreed upon collateral value, the lender may force surrender of the policy.
This may have serious consequences for the corporation and shareholder. When the lender forces surrender
of the policy, proceeds are first used to repay the loan. The remaining funds belong to the corporation,
but may not be sufficient to pay the outstanding tax liability triggered by the recognition in income of the
policy gain.
Not only does the corporation lose its valuable life insurance protection, it may fall short of the funds
needed to cover the outstanding taxes due. Clients need to ensure they understand the impact the
potential income and outstanding loan balance can have on their policy.
Interest rates
The interest rate that the borrower will pay on the loan is not guaranteed and will fluctuate with the
prevailing rate of interest. Higher than expected interest rates may mean that the accumulated loan balance
will catch up to the policy cash surrender value faster than projected in the CRS presentation, and trigger a
requirement for additional collateral.
TIP
Illustrate multiple loan interest rate scenarios to determine the impact of loan interest rate
increases on future CRS values. The loan interest sensitivity analysis report will illustrate the impact
that even a one per cent increase in interest rates will have on the performance of the CRS.
Living longer than expected
The CRS software is designed to calculate the loan amount that will reach the maximum collateral value
percent at life expectancy. Approximately 50% of the population will die before reaching life expectancy
and 50% will outlive life expectancy. If the life insured lives longer than expected or longer than was
illustrated in the CRS presentation, the loan balance may begin to exceed the maximum allowable
percentage of the policy’s cash value, again triggering a requirement for additional collateral.
TIP
Increasing the client life expectancy will lower the annual loan amount, creating a greater
margin of safety if the client lives longer than historical life expectancy. The closer to age 100
the life expectancy is set, the lower the risk of exceeding the maximum collateral value will be.
10 CORPORATE RETIREMENT STRATEGY
Policy performance
Because the maximum loan amounts are based on the policy cash value, any variation of actual
performance from that illustrated in the CRS presentation will impact the amount that can be borrowed.
Lower than expected performance over the long-term may mean that borrowers will have to reduce their
income expectations or risk exceeding the maximum collateral value sooner than expected.
There are a number of other items that can impact the expected benefits of this strategy. Have a discussion
with clients to ensure they understand the impact each of these can have.
TIP
Eos will calculate the maximum loan amount available based on the assumptions entered.
Using a specified loan amount that is less than the maximum will provide a greater margin of
safety should actual long-term results not meet expectations.
Borrowing limits
Lenders will typically lend anywhere from 50% to 90% of the policy cash surrender value. The CRS refers
to this amount as the collateral value. It can also be expressed as the ratio of loan balance to policy
cash surrender value. The exact amount will depend on how the policy funds are invested. Policies with
equity-based investments will have a lower collateral value while policies with guaranteed investments or
guaranteed cash values will have a higher collateral value. CRS lets you choose from a collateral value of
50%, 75% or 90%.
TIP
Participating whole life policies like Sun Par Protector and Sun Par Accumulator provide steady
cash value growth and may help reduce the risk of exceeding collateral loan limits.
CORPORATE RETIREMENT STRATEGY 11
Borrowers must qualify
Much like a car loan or a mortgage, individuals or corporations must qualify for loans when collaterally
assigning their policy. Owning a life insurance policy with significant cash values does not guarantee
approval for a loan. Each lender will have their own criteria that include credit history, net worth and
income. Lenders may ask for additional collateral beyond the life insurance policy. It is important to note
that lending practices may change over time.
Changes to tax rules
One of the primary advantages of the CRS is that the Income Tax Act (Canada) does not currently treat loan
proceeds as income, so these amounts are potentially tax-free to the corporation or shareholder. Tax laws
change frequently. Because the CRS is a longer-term strategy there is the risk that tax treatment applicable to
loans, interest deductibility and life insurance policies may change between now and the time the client decides
to take a loan without any grandfathering provision.
General anti-avoidance rules (GAAR)
GAAR may apply to any transaction that attempts to avoid taxes. Specifically, section 245(3) of the ITA
defines an avoidance transaction as any transaction “that but for this section, would result, directly or
indirectly, in a tax benefit, unless the transaction may reasonably be considered to have been undertaken or
arranged primarily for bona fide purposes other than to obtain the tax benefit.”
The Canada Revenue Agency has indicated a key issue in determining whether or not the loan is taxable as
a policy loan will be the link between the loan agreement and the purchase of the life insurance policy that
may contain terms relating to the loan.
Interest deductibility
Eos lets users illustrate the impact of loan interest deductibility. Interest deductibility is subject to the
deductibility criteria under paragraph 20(1) (c) of the ITA. If loan interest is paid or payable and if the
proceeds of the loan are invested to earn income from a business or property, then the interest expense
may be deducted from the borrower’s taxable income. If this illustration assumes interest deductibility,
please ensure clients consult their legal and tax advisors to confirm the applicability of interest
deductibility for their situation.
Interest on loans may be deductible only against income the corporation earns from business or
property, and only if all other conditions for deductibility are satisfied. The corporation must be active
and generating income from business or property. Where shareholder borrowing is being used, interest
deductibility will not apply if the loan proceeds are being used only to pay an income to a shareholder. For
individuals, the Quebec Tax Act limits the annual interest deduction to the amount of taxable investment
income generated in the year.
12 CORPORATE RETIREMENT STRATEGY
Loss of control
As we have seen, collaterally assigning a life insurance policy has the potential to provide significant
benefits to both the shareholder and the corporation. Policy owners should keep in mind that once a policy
has been collaterally assigned, they are giving up certain rights and control over that policy. The owner
cannot withdraw funds, take a policy loan or make changes to the policy without either first receiving the
lender’s consent or paying off the loan balance.
Retirement compensation arrangements (RCA)
An RCA is a plan or an arrangement made by an employer or a former employer that is used to provide
retirement income or benefits to an employee or former employee. In circumstances where a corporation
acquires a life insurance policy and is obligated to fund retirement benefits from it, through the CRS
or otherwise, and it’s reasonable to assume that the policy was acquired to fund these obligations,
a retirement compensation arrangement may be deemed to exist. This may result in significant tax
consequences. Clients should consult with their professional legal and tax advisors on this issue.
The loan agreement
Often set up by the lender as a line of credit, the loan agreement is a contract between the lender and
the borrower (corporation or shareholder). It sets out each party’s rights and obligations, which include
borrowing limits, repayment terms, collateral requirements and interest. Lenders may also have the option
to call the loan at anytime.
CORPORATE RETIREMENT STRATEGY 13
CRS SUITABILITY
The following questions can help you determine whether the CRS is the right fit for clients.
Does the corporation have a permanent corporate life insurance need?
The need for permanent death benefit protection should be the primary reason for the corporation’s
purchase of the life insurance, not the future need for access to cash. While there are many reasons that
a corporation may require permanent life insurance protection, some of the more common needs include
key person protection, funding a buy-sell agreement, paying off long-term debt obligations and covering a
potential capital gains tax liability on the shareholder’s ownership interest in the corporation at death.
Is the client healthy?
The CRS uses permanent life insurance, so clients must be reasonably healthy and able to qualify for the
coverage to take advantage of its benefits.
Does the corporation have excess taxable corporate assets?
Passive corporate investment assets attract tax at the top marginal rate and the income does not qualify for
the small business deduction. Transferring taxable asset to a corporate owned insurance policy can provide
potential tax savings.
Does the corporation require a tax-effective source of future income?
These funds could be used to help expand business opportunities, improve operational efficiencies, access
a source of cash for emergency purposes or supplement retirement income.
Is the corporation and/or shareholder comfortable with leverage risk and carrying debt?
While the benefits of the CRS can be sizable, clients must realize they are using borrowed funds and are
therefore assuming some risk. Clients must be comfortable with the risks before considering this strategy.
Does the corporation and/or shareholder have a long-term planning view?
The CRS is intended to be in place for the life of the business owner. A long-term view is essential to
maximizing the benefits of this strategy.
14 CORPORATE RETIREMENT STRATEGY
SELECTING A POLICY TYPE – PARTICIPATING
WHOLE LIFE OR UNIVERSAL LIFE
Choosing the policy type to use with this strategy will come down to the unique characteristics of the
client, their risk profile and desire for flexibility.
Reasons to consider participating whole life insurance:
Stability of growth – The combination of a long-term investment strategy, a large, well-established par
account and a prudent management philosophy contributes to strong, stable returns for policy owners. A
stable stream of returns can help to reduce the variability of policy performance.
Low maintenance – Policy owners do not have to pick and manage the investments within the policy. The
Sun Life Participating Account is managed by a team of dedicated investment professionals.
Diversification opportunities – Participating policies have access to the participating account through
policyholder dividends and consist of a diversified mix of bonds, real estate, equities and mortgages.
An asset class on their own, participating whole life plans allow for diversification of a client’s existing
corporate asset base.
Guarantees – Participating whole life insurance plans come with guaranteed cash values that continue to
increase over the life of the contract. Both the guaranteed values and non-guaranteed values can be used
to calculate the amount a lending institution is willing to lend. The lending institution may be willing to
lend greater amounts against a policy with guaranteed cash values and investments than against one with
variable investment options.
Vesting of dividends – Once a dividend is paid to the policy owner, it cannot be taken away unless
directed by them. This helps to reduce cash value variability and adds stability to the long-term values
in the policy.
Reasons to consider universal life insurance:
Premium flexibility – Universal life allows for greater premium flexibility than participating whole life.
Only the monthly policy charges need to be made to ensure the policy stays in force. This may be
beneficial to corporations with variable cash flow.
Investment choice – Universal life plans allow policy owners to select from a wide variety of equity,
fixed income and guaranteed investment options. This can enable a business owner to replicate the asset
classes already held within their corporation.
Control – Universal life plans allow policy owners the opportunity to take control of managing their asset
mix and seeing the breakdown of the premiums paid to the policy, including cost of insurance, premium
tax, and additional benefits.
CORPORATE RETIREMENT STRATEGY 15
MAKING IT EASY
Our goal is very simple – to make it as easy as possible for you to sell and service our products. By providing
clients with a concrete summary of the issues that face them, you will be better positioned to help them
structure an effective financial solution. That’s why we offer the following tools that you can use to explain
the benefits of the CRS strategy to clients.
CORPORATE RETIREMENT STRATEGY TOOLS
Client fact sheet – participating whole life: This fact sheet sets out how
the CRS strategy works with participating whole life, highlights the
benefits and encourages clients to contact you for more information.
Protect the value of your
comPany and maintain
access to cash
The corporaTe reTiremenT sTraTegy wiTh
parTicipaTing whole life
Being a business owner comes with unique risks because a steady increase in the
value of your business can result in significant tax bills. Corporations are taxed
at the top marginal rate on traditional investment assets and the income doesn’t
qualify for the small business deduction. Capital gains taxes may apply when
these assets are sold or reallocated, reducing corporate assets.
Catherine expects the corporation will owe sizable capital gains taxes on her
death due to the steady increase in value of the corporation’s shares and
investment assets. She and her advisor determine she needs $1,000,000 of
permanent life insurance to protect the value of her corporation. In addition, while
Catherine expects to have enough money to cover her living expenses during
retirement, she’d like to have the potential for additional income if she needs it.
She wants to build a pool of corporate assets to provide future liquidity if needed.
meeT caTherine
Catherine, age 44, is
the sole shareholder
of a successful
Canadian controlled
private corporation
that generates annual
corporate surplus of
just over $50,000.
The challenge
Catherine wants the flexibility to access corporate investment assets in a tax-effective
manner while reducing the tax bite on these assets.
Catherine wants a solution that will provide guarantees and stability while
protecting the corporation’s corporate surplus.
Catherine doesn’t want to sacrifice long-term growth potential by investing only
in low yielding, interest bearing investments.
Catherine wants to reduce taxes on the corporation’s invested surplus.
She expects the corporation will owe sizable capital gains taxes on her death.
She wants to ensure the value of the corporation is protected for her children.
Client fact sheet – universal life: This fact sheet sets out how the
CRS strategy works with universal life, highlights the benefits and
encourages clients to contact you for more information.
Protect the value of your
comPany and maintain
access to cash
The corporaTe reTiremenT sTraTegy
wiTh sunUniversalLife
meeT wiLLiam
Being a business owner comes with unique risks because a steady increase in the
value of your business can result in significant tax bills. Corporations are taxed at the
top marginal rate on traditional investment assets and the income doesn’t qualify
for the small business deduction. Capital gains taxes may apply when these assets
are sold or reallocated, reducing corporate assets.
William, age 48, is the
sole shareholder of a
successful Canadian
controlled private
corporation that generates
annual corporate surplus
William expects the corporation will owe sizable capital gains taxes on his death
of just over $50,000.
due to the steady increase in the value of the corporation’s shares and investment
assets. He and his advisor determine he needs $1,000,000 of permanent life
insurance to protect the value of his corporation. In addition, while William expects to have enough money to cover
his living expenses during retirement, he’d like to have the potential for additional income if he needs it. He wants to
build a pool of corporate assets to provide future liquidity if needed.
The challenge
William wants the flexibility to access corporate investment assets in a tax-effective
manner while reducing the tax bite on these assets.
William wants a solution that provides flexibility. While the corporation’s annual
income is generally stable, the timing of that income is inconsistent. William also
wants to build an aggressive but balanced asset mix.
William wants to reduce taxes on his corporation’s invested surplus.
He expects the corporation will owe sizable capital gains taxes on his death. He
wants to ensure the value of the corporation is protected for his children.
Guide to leveraging a life insurance policy: A guide for lawyers,
LEVERAGING A LIFE
INSURANCE POLICY
A GUIDE FOR LAWYERS, ACCOUNTANTS
AND INSURANCE ADVISORS
Using life insurance as collateral
for personal and business planning.
16 CORPORATE RETIREMENT STRATEGY
accountants and insurance advisors, this booklet reviews several
methods of accessing the cash value of an exempt life insurance
policy, including a number of third-party leverage structures, with a
balanced discussion of the benefits and risks.
We’re here to help
We’ve been a trusted and reliable company for over 145 years. As a leading international
financial services organization, we continue to build on that strong foundation with a
focus on market-leading products, expert advice and innovative solutions.
Our team of insurance- and investment-focused sales directors, living benefits specialists,
and advanced tax and estate planning specialists understand your needs and work with
you to help you make the best decisions.
Contact your Sales Director or visit www.sunlife.ca today.
Life’s brighter under the sun
© Sun Life Assurance Company of Canada, 2011.
810-3704-Digital-06-11