Company Profile
•
•
•

• ACB of John’s shares $10,000
• PUC of John’s shares $10,000

• ACB of Mary’s shares $10,000
• PUC of Mary’s shares $10,000

Company Profile
• Growth rate of company 2%
• Personal marginal tax rate on income 50%
• Personal marginal tax rate on dividends 33%
• Capital gains inclusion rate 50%
• Assume John died last night
• Assume Mary sells the business in 10 years

Alternative 1.
Criss-cross with personally owned insurance
• John buys $1,000,000 of insurance on Mary’s life
• Mary buys $1,000,000 of insurance on John’s life
Premiums
50%
XYZ Inc.
50%
Premiums

Alternative 1.
Criss-cross with personally owned insurance
$1,000,000
Death Benefit
1
Mary
$1,000,000
To purchase shares
John’s estate
2
3
As per Buy-Sell returns shares to Mary

Alternative 1.
Criss-cross with personally owned insurance
Taxation
1.
Premiums paid with after-tax dollars by owners
2.
Any capital gains on “sold” shares belong to deceased’s estate
Advantages
1.
The simplest of all alternatives
2.
Surviving owner(s) have an increased ACB
3.
Insurance proceeds protected from corporate creditors’ claims
Disadvantages
1.
Large number of policies to maintain if there are multiple owners
2.
Dealing with policies could be a problem in the event of disagreement
3.
Premiums are paid with individual after-tax dollars.

Alternative 2.
Criss cross with corporate owned insurance
• XYZ Inc. buys
$1,000,000 of life insurance on John’s life and
$1,000,000 of life insurance on Mary’s life
50%
XYZ Inc .
Premiums
50%

Alternative 2.
Criss cross with corporate owned insurance
$1,000,000
Death Benefit
1
XYZ Inc.
XYZ Inc. declares a capital dividend of $1,000,000
4
Mary Now owns 100% of XYZ Inc.
Mary
$1,000,000
Promissory note
To purchase shares
John’s estate
$1,000,000
2
5
3
As per Buy-Sell
Returns shares to Mary

Alternative 2.
Criss cross with corporate owned insurance
Taxation
1.
Premiums paid by corporation are a non-deductible expense
2.
Proceeds received by the company are tax-free
3.
Proceeds in excess of ACB are credited to the CDA
4.
Any capital gains on “sold” shares belong to Estate of the deceased
Advantages
1.
After-tax premium cheaper if the company is in a lower tax bracket
2.
Fewer policies are required (one per shareholder)
3.
Premium disparities are not an issue
4.
Surviving owner(s) have an increased ACB equal to the purchase price of the newly acquired shares
Disadvantages
1.
Insurance proceeds subject to claims from company’s creditors

Alternative 3.
Share redemption with corporate owned insurance
• XYZ Inc. buys
$1,000,000 of life insurance on John’s life and
$1,000,000 of life insurance on Mary’s life
50%
XYZ Inc.
Premiums
50%

Alternative 3.
Share redemption with corporate owned insurance
$1,000,000
Death Benefit
1
XYZ Inc.
$1,000,000
To purchase shares
John’s estate
2
3
As per Buy-Sell returns shares XYZ Inc.
For cancellation

Alternative 3.
Share redemption with corporate owned insurance
Taxation
1.
Premiums paid by corporation are a non-deductible expense
2.
Proceeds received by the company are tax-free
3.
Proceeds in excess of ACB are credited to the CDA
4.
Proceeds received by the shareholder’s estate in excess of the PUC deemed a dividend. The dividend could be elected as a capital dividend
Advantages
1.
After-tax premium cheaper if the company is in a lower tax bracket
2.
Fewer policies are required (one per shareholder)
3.
Premium disparities are not an issue
Disadvantages
1.
No increase in the ACB for the surviving shareholder
2.
Insurance proceeds subject to claims from the company’s creditors

Alternative 4.
Hybrid method with corporate owned insurance
• The insurance would be corporately owned but the agreement would allow flexibility in determining at death how many shares would be purchased by the surviving shareholders and how many shares will be redeemed by the corporation.

Alternative 4.
Hybrid method with corporate owned insurance
• XYZ Inc. buys
$1,000,000 of life insurance on John’s life and
$1,000,000 of life insurance on Mary’s life
50%
XYZ Inc.
Premiums
50%

$1,000,000
Death Benefit
1
XYZ Inc.
$500,000
To purchase shares
2
3
John’s estate
As per Buy/Sell returns
50% of shares XYZ Inc.
For cancellation
4
$500,000
Promissory note
To purchase shares
7
5
As per Buy/Sell returns 50% of shares to Mary
XYZ Inc. declares a capital dividend of $500,000
6
Mary Now owns 100% of
XYZ Inc.
Mary

Alternative 4.
Hybrid method with corporate owned insurance
Taxation
1.
Premiums paid by corporation are a non-deductible expense
2.
Proceeds received by the company are tax-free
3.
Proceeds in excess of ACB are credited to the CDA
4.
Proceeds received by shareholder’s estate in excess of PUC deemed to be a dividend. The dividend could be elected as a capital dividend
Advantages
1.
After-tax premium expense cheaper if company is in a lower tax bracket
2.
Fewer policies are required (one per shareholder)
3.
Premium disparities are not an issue
4.
Surviving shareholder gets an ACB step up
Disadvantages
1.
Insurance proceeds could be subject to claims from the company’s creditors
2.
Somewhat complicated arrangement