What is the purpose?

All business owners know only too well that when the business is profitable the profit is taxed in the Company first, and when paid to the shareholders, it is taxed again at the higher personal tax rate. Even dividends are highly taxed, albeit at a slightly lower rate.

The funds taken out of the Company are worth only 52¢ per dollar after tax.

The purpose therefore, is that those funds, captured in the Company, be used in financial instruments that enable the shareholder to access the funds without the tax.

There are several techniques available to accomplish that task and all of them are based on the favourable provisions of the Tax Code. Some are quite simple, others are more complicated, while a few are quite complex, but very profitable.

But whatever level of complexity, and whatever technique is applied, these instruments are not only profitable, but also very safe and risk free.
 
A Profitable Instrument

A Universal Life policy, properly applied to the needs of a Corporation, is profitable to the Business, as well as to the shareholders.

The principle of the Business Insurance is that the death of an active shareholder, or the owner of the business could severely reduce the value of the shares of the Company. To avoid such losses and the inevitable capital gains tax, due at such times, the most suitable instrument is the life insurance policy the Company would purchase on the shareholder's life.

In case of death, the resulting tax free insurance settlement would provide ample cash resources to the heirs and beneficiaries and stave off the financial consequences.

There is, however, no need to count on death for the pay out. During the lifetime of the shareholder, additional wealth is building up in these policies and the funds thus accumulated are available at an 80-90% lower cost than the tax would be on the same funds if bonused out.

Another equally helpful and profitable instrument is the Executive Health Savings Plan. It is based on a Critical Illness policy. The purpose is, however, to protect the Company and the insured shareholder from the disastrous effects of a critical illness.

This policy has a "Return of Premium" provision, meaning that if there was no claim, the entire accumulated premium can be returned to the shareholder tax free after a predetermined period of time, or at a certain age. At the same time, the Corporation enjoys a tax-deduction for part of the premiums.

 
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