Case Study Example 3
This scenario focuses on the retirement benefits for key executives and select employees.
Maple Financial Services Ltd., a boutique financial advisory firm, strives to provide appealing retirement benefits to key executives while optimizing tax strategies and using retained earnings effectively.
The Canadian Allied team has helped many Canadian corporations with this type of scenario. They will customize a specific financial mechanism to meet their needs.
Challenge & Solution
Maple Financial Services Ltd., a boutique financial advisory firm, strives to provide appealing retirement benefits to key executives while optimizing tax strategies and using retained earnings effectively.
Solution
The corporation establishes a group of participating dividend-paying life insurance policies for key executives and select employees. These policies offer cash value accumulation and regular dividends. Executives can access the cash value tax-efficiently during retirement.
Tax Free Cash Value Growth and Dividends
The policy grows tax free in triple rated insurance companies overfunded participating account. These policies offer tax-advantaged cash value growth and dividends. Upon their passing, the tax-free death benefit flows into the Capital Dividend Account (CDA), facilitating efficient wealth transfer.
Financial Leverage and Wealth Growth
The policy's cash value serves as collateral for a loan, with the principal not due until policy maturity. The competitive loan interest can potentially be written off by the corporation. Additionally, the corporation can access retained earnings through a guaranteed fee arrangement agreement. This agreement triggers no tax event to the shareholders, as the corporation treats it as a loan. The loan proceeds, along with the retained earnings, can be dual-stacked by reinvesting them in secure investments for amplified returns.
CPC Benefits
These are the benefits this Canadian private corporation will receive from this scenario:
- Employee Retention: Policy acts as a valuable employee benefit, aiding talent retention
- Retirement Planning: Cash value provides tax-advantaged supplemental retirement income
- Tax-Efficient Income: Withdrawals and loans from the policy are generally tax-free
- CDA Credit: Capital dividend enriches retirement benefits, tax-free for beneficiaries
- Dual Stacking Investments: Collateral loan proceeds and retained earnings reinvested in secure investments amplify returns
- Collateral Loan Advantages Loan principal not due until policy maturity, with competitive loan interest potentially deductible by the corporation
- Retained Earnings Benefits: CaAccess retained earnings tax-efficiently through guaranteed fee arrangement agreement treated as a loan
