Harvest Moon Insurance

A Universal Life Policy provides a Tax Shelter

There is a Premium tax of 2% in most provinces.
The Life Insurance company pays directly to the C.C.R.A. a special tax (I.I.T.) at the end of each year.
This reduces the return on the investment portfolio between 60 basis points to 80 basis points, depending on long term bond rates.
Deposits to a Universal Life contract are variable at the discretion of the policy holder.
Investments are at the discretion of the policy holder and can be changed at any time to create an investment portfolio to suit each policyholder.

U.L. Policy owned by a Holding Company

The Operating Company pays tax at the low rate (approx. 20%) on profits.
The operating company pays a dividend to the holding company from after tax profits. There is NO tax on inter company dividends.
The holding company invests this dividend in a tax sheltered U.L. with 80 cent dollars. - Compared to investing with personal after tax dollars.

A capitalized bank loan provides an effective way to obtain a tax free income for shareholders of holding companies which have been used to save money in a U.L. Policy.

Corporate owned Life Insurance death payments create "Capital Dividend Accounts".
This means proceeds can be paid out of the company "Tax Free" as a capital dividend.

Corporate owned Life Insurance used to fund a buy sell agreement between shareholders, can make use of the capital dividend account to benefit both the deceased's estate and survivor.

Example:

Eligible for $500,000 Capital Gains Exemption.

Life Insurance paid to corporation "after death" does NOT increase value of shares for "deemed disposition before death".
$1,000,000 death benefit creates $1,000,000 C.D.A.
$500,000 worth of shares purchased from deceased's estate by corporation.
This is treated as a tax free capital dividend. This reduces the capital dividend account by $500,000.
The survivor(s) purchases the remaining shares from the estate for $500,000.
The survivor gives the estate a promissory note, or borrows from a bank.
This triggers a capital gain for the estate of $500,000.
The estate utilizes the $500,000 Capital Gains Exemption, to negate the Capital Gains tax.
The survivors cost base for these shares is $500,000.
The survivors have the corporation pay out the remaining $500,000 of Life Insurance proceeds, as a tax free capital dividend.
The survivor pays off the bank or promissory note.

Elderly Shareholders

An elderly shareholder may have substantial funds in a holding company.
The holding company pays tax on the investment return at the high tax rate.
If the funds are paid out as a dividend, they are taxed again in the shareholder's hands.
If the funds remain in the holding company, they will increase the value of the shares of the holding company.
Capital gains tax will have to be paid upon death of the shareholder. The shares of the holding company are deemed to be disposed of at F.M.V. at death.
This is double taxation.
Instead, the Holding Company can pay these funds into a universal life policy over 3 or 4 years.
Then the death proceeds paid to the holding company, are tax free. This money, in excess of the adjusted cost basis of the policy, can be paid out as a tax free capital dividend to the estate.
In effect, the money is tax sheltered in the holding company and eventually is paid out of the company, tax free.