Split Dollar CI: A Simple Way to Save Taxes and Protect Your Business
Imagine you have $5,000,000 in your business account. You want to keep it safe and grow it, but you’re worried about paying a lot in taxes. If you own a Canadian-Controlled Private Corporation (CCPC), taking that money out as dividends can lead to big tax bills. That’s where Split Dollar Critical Illness Insurance (Split Dollar CI) can help you save money and protect your business.
What Is Split Dollar CI?
Here’s how Split Dollar CI works in simple terms:
Your Company Pays: Your company buys a critical illness insurance policy for you or an important employee. This policy gives money if the insured person becomes seriously ill.
Sharing the Benefits: If the insured person gets sick, they get a tax-free lump sum of money to help with medical costs or just to feel secure. Your company keeps the policy’s cash value as an asset.
How It Helps You Save Money?
Let’s compare two options:
Regular Investment: If you keep $5,000,000 in your company and it earns a 5% return, you make $250,000. But in a CCPC, this income is taxed heavily—up to 50%. So after taxes, you end up with only $125,000. Plus, if you try to take out this money as dividends, you face even more taxes.
Using Split Dollar CI: Instead, if you use the $5,000,000 to fund a Split Dollar CI policy, the cash value grows without immediate taxes. If the insured person becomes critically ill, they get a big tax-free payout, often more than you would keep from taxed investments. Plus, the cash value is still an asset for your company without the heavy tax hit.
Why It Matters
In a CCPC, you can get stuck with high taxes on earnings and dividends. Split Dollar CI lets your company grow its assets while offering critical illness protection, avoiding heavy taxes. This way, your business’s money keeps working for you.
Disclaimer
I’m an insurance expert, not a tax advisor. It’s best to talk to a tax professional for advice that fits your situation.
Let’s Talk
Want to learn more about how Split Dollar CI can help your business? I’m here to assist. Schedule a meeting with me at Chandlerinsurance.org or send me a message on social media. Let’s find out how to protect your business and grow your money.