Split Dollar Critical Illness Strategy

March 03,2018

Split Dollar Critical Illness Strategy


Are you a business owner who owns a corporation and is tired of paying high taxes to transfer your profits to your personal account? We have illustrated a case study below that demonstrates just one of the methods we use to extract retained earnings from your corporation with minimized tax impact.


Joe is a dentist who is a shareholder and key person in his company. He has a net income of $250,000 per year and is always looking for ways to extract more earnings out of his company without paying high taxes on it. At Business Critical, we have an insurance solution that is used specifically to address this problem.


Here’s how it works: we take a jointly owned critical illness policy and split the policy between the corporation and the shareholder. The corporation roughly pays for ⅔ of the policy with after-tax corporate dollars and the shareholder pays for ⅓ of the policy with after-tax personal dollars. By using a return of premium rider, after 15 years the entire amount paid is received by the shareholder, tax-free. This enables you to transfer portions of your profits from your corporation into your personal account tax-free, which you would normally need to pay a high personal income tax on.


If Joe decided to put away $10,000 each year, then at his marginal tax rate, he managed to save roughly $1,500 a year using this strategy.


In addition to the tax benefits, you also receive the benefit of a critical illness policy. What would happen to your business if you had to take a year off in order to recover from cancer, a heart attack, or a stroke? Did you know that 1 in 3 Canadians will develop some type of cancer in their lifetime? 1 in 4 Canadians will contract some form of heart disease. 50,000 Canadians suffer a stroke every year.


Protect your family and your business with a critical illness policy that will pay your corporation a lump sum amount to help keep things running while you are recovering. If you had the option to save money on taxes and ensure your business can continue in the event of a critical illness, why wouldn’t you?

If this sounds like a solution that would work for you, please schedule a call or email philip@businesscritical.info for more information.