Business solution
Your company is worth millions. The tax authorities know.
At death, your shares are deemed sold at market value: the estate owes tax on the gain without having received a dollar. Corporate-owned life insurance creates exactly the needed liquidity — and keeps the successors from dumping the business to pay.
- Tax paid without selling or borrowing
- Double taxation avoided with proper planning
- Capital paid through the capital dividend account
Connect with a partner financial security advisor.
A company valued at $5M, founded with a few thousand dollars, carries a latent gain of almost $5M: nearly $1.3M of tax due on the deemed disposition at the last shareholder's death. If the estate then takes money out of the company to pay, a second tax applies. Without planning, the combined bill can exceed 50% of the value.
The solution
- 1
Quantify the latent tax
With your accountant: share value, cost base, available capital gains exemption, spousal rollover. The advisor projects the bill at the second death.
- 2
Insure at the company level
Permanent life insurance (often joint last-to-die) owned by the company, for an amount equal to the projected tax, indexed to the business's growth.
- 3
Use the capital dividend account
The death benefit credited to the CDA allows redeeming the estate's shares or paying it a tax-free capital dividend — this is what breaks double taxation, with the right post-mortem strategy.
- 4
Coordinate freeze and succession
An estate freeze fixes the founder's tax; insurance funds the known amount; future growth goes to the children or successor executives.
A 60-year-old founder, distribution company valued at $6M, negligible cost base, married. At the second death, projected tax of about $1.5M. The company buys a $1.6M joint last-to-die policy for about $30,000 a year: when the time comes, the estate pays the tax with the insurance proceeds, the two children keep 100% of the business, and the CDA balance is paid to them tax-free.
Illustrative: post-mortem strategies (pipeline, share redemption, subsection 164(6) election) and premiums depend on each file. Tax specialist and accountant are essential.
Who it is for
- Shareholders of private companies worth far more than their cost base
- Founders preparing a family or internal succession
- Shareholders who have done an estate freeze
- Owners of real estate or holding companies
How big will the bill be at death?
A partner advisor, with your accountant, projects the tax on your shares and the cost of funding it in advance.
No planning vs tax funded by corporate insurance
Common mistakes
- 01
Counting on selling the business to pay
Selling a business in mourning, under time pressure, means selling at a discount.
- 02
Insuring a frozen value
A $1M policy bought when the company was worth $3M covers nothing when it is worth $8M.
- 03
Separating insurance from tax planning
Without a post-mortem strategy, the death benefit arrives but double taxation remains.
Points to consider
- Business value evolves: review the insured amount every 3 to 5 years.
- The capital gains exemption reduces tax if the shares qualify: planning must preserve it.
- Corporate ownership requires a clear clause in case the business is sold.
- The spousal rollover defers tax: joint last-to-die is often the most economical structure.
The solutions presented are for information only and rely on current Canadian and Quebec tax legislation, which may change. Sommet Protection gives no financial, tax or legal advice: the analysis is done by a partner financial security advisor, together with your accountant and legal advisors.
Frequently asked questions
My accountant says the exemption will cover everything.
The exemption (about $1.25M per person) reduces tax; it does not eliminate it for a multi-million-dollar company. And it requires the shares to qualify at the time of death, which is not guaranteed.
Why the company rather than me?
Premiums are paid with dollars taxed at the corporate rate, and the death benefit flows through the capital dividend account. Owning the policy personally loses both advantages.
Protecting the business you built: the insurance guide for owners and the self-employed
The five risks that close profitable SMEs, and how to fund them for a fraction of their cost.
Read the guide- 8 chapters
- 1. You are the most important asset — and the least insured
- 2. A partner's death: the scenario that divides families
- 3. Disability: three protections, three different roles
- 4. The key person worth 30% of revenue
- 5. Debts, guarantees and lenders
- 6. Tax at death on shares: the founders' file
- 7. A health plan for your incorporated company
- 8. Where to start
The solutions
Key person insurance
Protect the business from losing the person it depends on.
Learn more →Shareholders' agreement
Fund the buyout of a deceased or disabled partner's shares.
Learn more →Self-employed disability
Replace your income when you can no longer work.
Learn more →Business overhead expense
Pay rent, salaries and loans during your disability.
Learn more →Business critical illness
A lump sum for the company or owner at diagnosis.
Learn more →Business succession and transfer
Secure the transfer to family or executives, whatever happens to the founder.
Learn more →Loans and personal guarantees
So the business's debt never becomes your family's.
Learn more →Health and key employee retention
Protect and retain your essential executives with company-funded benefits.
Learn more →
Let's talk about your business
A partner SME specialist advisor calls you back for a no-fee diagnosis. Bring your shareholders' agreement and financial statements: the advisor quantifies with you.