Corporate-Owned Life Insurance (COLI)

SERVICES

Corporate-Owned Life Insurance: A Tax-Efficient Corporate Asset

Corporate-Owned Life Insurance (COLI) is a structure in which a corporation owns an insurance policy and is also the beneficiary of a Permanent Life Insurance policy. For high-net-worth business owners, COLI functions primarily as a tax-efficient corporate asset, complementing traditional purposes such as income replacement, key-person coverage, and buy–sell funding. It enables tax-exempt policy growth, creates Capital Dividend Account (CDA) credits, and allows value transfer to beneficiaries with minimal tax exposure.

Canadian-controlled private corporations often retain surplus profits due to lower corporate tax rates on Active Business Income (ABI). Retained earnings invested in taxable passive instruments face high corporate passive income tax and eventual high dividend tax rates upon extraction, creating the “tax grind.” By deploying retained earnings into COLI through holding company, the Cash Surrender Value (CSV) of insurance policy grows tax-free, and at death, the death benefit minus the policy’s Adjusted Cost Basis (ACB) is credited to the CDA. This enables tax-free distribution to shareholders’ estates while potentially reducing deemed disposition tax on corporate shares if operating company shares are eligible for lifetime capital gain exemption.

At SGA Wealth, we integrate COLI into each client’s corporate and estate ecosystem. Policies are structured to maximize CDA credits, preserve corporate liquidity, and align with long-term shareholder, succession, and post-mortem objectives. Our approach ensures COLI operates as a strategic corporate asset, coordinated with trusts, estate freezes, and shareholder value preservation strategies.