Corporate-owned insurance: what the “corporate TFSA” comparison leaves out

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This is a client out of Alberta. It's now moving over $200,000 annually. It's been in Canada since before the Income Tax Act even existed. Very specifically designed taxexempt insurance contracts that allow for much much larger capital accumulation on a tax exempt basis. Punitive rates of tax in Alberta which is almost at 50% on every dollar and he's just sick and tired of paying. They don't see the value in the taxes that they are being forced to support. Having access to a tax exempt pool of capital, he's no longer paying any income tax on the returns. He controls the liquidity. We want to cut CRA out as much as legally possible. Would you rather give money to CRA or to your kids? If you thought to be true turned out not to be true, how quickly would you want to know it?

How does the Canadian tax code allow 99% of Canadian entrepreneurs that have never heard of? Welcome to Beyond the Bottom Line. I'm your host, Joey Lon, and this show is about pulling back the curtain on how the ultra wealthy actually protect and grow their money without the gatekeeping or the complexity. So each week I sit down with elite experts working with top business owners and wealthy families to reveal practical strategies that you can implement that business owners can implement right now uh to keep more of what they earn and pay less in taxes legally. So my guest today is our first Canadian financial expert, none other than Michael Sidu, president of 360deree wealth strategies, financial coach, mentor, and strategist who's dedicated to helping Canadian business owners grow, control, and protect their capital while reducing government interference uh in their lives.

So Michael specializes in what he call corporate tax exempt strategies, including what might be the most powerful wealthb buildinging tool that Canadian business owners have never heard of. So, with that said, welcome to the show, Michael. Thanks very much, Joey. Appreciate the invitation to come and say hello. Yes, sir. All right. Well, Mike, every Canadian knows about the $6,500 TFSA annual contribution, taxfree growth, right? But you've told me that um what you call a TFS on steroids for business owners that 90 99% of Canadian entrepreneurs have never heard of. What is this strategy and why is it such a well-kept secret? You know, why is it bea a wellkept secret? It's because people haven't been talking about it. This is a triedand-true tested strategy. It's been in Canada since pro before the income tax act even existed.

Uh but it fell out of favor uh through the late60s7s 80s. We could go into why, but it's not really important. uh but it has made a comeback in the last 20 25 years in the Canadian finance industry uh financial planning industry. Look this is a solution that's not for everybody but for the right person for the right person who understands its tax benefits and what it can do double triple duty uh for people's objectives and goals. It is uh not utopia but it's the very next closest thing to it. uh TFSA uh like uh asset class. Uh, of course, TFSAs are only for individuals in Canada and there's you pointed out the the limitations on contributions every year, but we can blow that up with very specifically designed taxexempt insurance contracts that allow for much much larger capital accumulation on a taxexempt basis.

And uh yeah, I'm I've been using this these kinds of strategies for decades with business owners uh with much success. Uh there are some accountants who understand it and some who don't and God bless the ones who don't. But uh there's a lot of great compliance uh accountants. There's basically Joey, two different types of accountants out there. And I I we're probably going to dig into this a little bit in the in the talk today, but there's those who provide compliance services and those who perform or provide advisory services and tax advisors understand these uh the construction of the contracts very well and and we have a lot of great uh seamless integration with tax legal professionals understand these strategies and their clients. That's good. Yeah. And my goal today is I want to extract as much information as possible so that just the Canadian business when they're watching this, they can know what's that TFSA on steroid strategy, how how they can use that to their advantage.

Um, I know we were talking a bit before turning on the cameras about a recent case, a recent client you've helped, a recent business owner you've helped that's now moving over $200,000 annually into this corporate TFSA strategy. Can you walk us through that example, what it is exactly, and share as much detail as you can? Yeah, sure. So, this is a client out of Alberta. Uh, he's got a couple different companies, but one has been just accumulating. He's done everything his accountant has told him to do. He hasn't paid himself extra dividends. He's been accumulating retained earnings over time. And this is a long-term business owner. He's got well in excess of a couple million dollars of capital inside his company. And he's just sick and tired of paying the AI. That's the adjusted accumulated or adjusted aggregate investment income uh punitive rates of tax in Alberta, which is almost at 50%.

Uh on every dollar that he makes in interest or or passive income of any kind, and he's just I'm sick and tired of it. I don't mind paying my tax. And I think this, you've probably heard this as well, Joey, but most business owners aren't totally opposed to paying tax, but they don't see the value in the taxes that they are being forced to support the rest of the country with. Uh, so he's got two strikes against him. He's from Alberta. He's a business owner, so he feels doubly attacked, but uh so we had a we had a great conversation with him about taking a portion of that money and and just transferring it into an asset class that's taxexempt inside his his company so that he can accumulate any retained earnings that he has uh over time into a into this asset class.

He's moving it over a little bit of probably one/tenth over a 10-year period. And from then on in, he's no longer paying any uh income tax on the returns that he's creating on that money. He controls the liquidity. He so therefore he has the control and access to that money at any time uh through either leverage or making withdrawals. uh he can create a very taxefficient strategy for retirement income and plus because it is got a wrapper of a insurance contract. It's also able to pay out uh to either his uh beneficiaries of the shares of his company. Uh we'll go into the technical details of how that works, but it's transferred to to the next generation. I don't know any business owner in Canada these days that isn't interested in taxefficient wealth transfer to the next generation taking care of their family taking care of of the people that they care about but still having the living benefits of all the things that they can do with it.

No, that's true. And you're saying about Alberta. Well, I'm from Quebec, so I can definitely relate when you talk about that. But I think like I'm I think I'm gonna speak for a lot of business owners uh in Canada that I think there's a big stigma around like okay like the old the ultra wealthy the wealthy not paying taxes and that line of I don't want I want to I want to pay my fair share but I just don't want to overpay. Um and I want to make sure it's legal. There's a lot of information out there. Um, and then there's your CPA or your current team that they're being defensive as possible, right? So that they're nothing happens to you. Like, so I feel like business owners, they're kind of restrained in in not knowing what to do and whenever they get an a piece of information, their number one reflex is, ah, I don't know, that sounds too good to be true.

What do you have to say to those business owners like me, for example, that that I'm hearing this as well? Yeah. Well, the the things we do aren't based on belief because it's not a religion. And this is very pragmatic. It's mathematical. It's pragmatic. And it's it's outlined in the act. It's codified under law that you're able to do these things. And most business owners are super surprised that when they dig into the benefits of the income tax act that's provided to them, there are provisions within the income tax act that benefit business owners that benefit the creation of wealth because that's what the original intent was to structure a tax system that uh provided some benefits for people that are providing jobs. When you look at the small business community in Canada, it is the number one employer still even though we've had this huge expansion of government employees.

It small business in Canada provides the majority of the jobs, the majority of the economic growth in this country. And so yeah, they are being hammered on the other hand because over the last 1015 years the tax regime has gotten more and more punitive to people who are creating wealth, creating success in this country. So the number one thing I would say is that uh don't just say I don't believe in it. Uh when part of the part of the law codifies these strategies, the number two thing is not a religion. And number three, when you actually sit down, go through the parts of the income tax act with their tax professional, their tax professional would say yes, those things are true within the act. You know, a lot of tax professionals may not uh take the same stance uh of of saying whether this is a suitable uh strategy for their clients.

But within every accountant's book, there is a certain amount of business owners that can absolutely take advantage of the things that the to your point, the wealthy have always been doing this. They've been doing this for in Canada almost 200 years. 175 years these strategies have been in place and under law in Canada. So are they available to the you and me level? You know, we're both entrepreneurs and certainly we can we can do all these things that uh uh the ultra wealthy are doing just on a m perhaps micro scale. Uh that instead of you know sheltering billions of dollars, we might be able to shelter $100,000 a million dollars a year. Whatever that that number is is subjective. And um I just think that most more people need to be educated on these things.

And I think that's the great point of this podcast is that you're providing a great valued service to business owners who are looking to educate themselves and quite frankly running out of options. Yeah. No, that's totally true. Uh absolutely. And and now let's let's break it down. Let's break this down to your point of educating the business owner. Okay. Like everything we've said so far sounds super nice, sounds super great. What is that TFSA on steroid? what can how how how how does that look like if we break this down? Um what is the strategy implemented to to to them to help them basically save on those double taxation if even sometimes triple right can you expand on that? Sure. Well, let's maybe start with the problem and then work our way into the solution.

So the problem is is tax on p the punitive tax if I may say so on investment returns on their passive income. So you basically have three a progressive taxation regime in Canada. Certainly personally, you know, you go through the more you make, the more they take on a pro percentage basis. And same thing with the Canadian tax uh business owner. The tax that they're paying in their business is active income under 500,000. If they qualify for the small business deduction, they they do get a relief on the first $500,000 of income. Uh the second uh tax rate of tax is your general applied uh on what's called the uh uh general rate income pool which is your uh basic tax no uh small business deduction. It's just your general rate of tax. But then the AI tax rate is your high punitive passive income and that's assessed on dollar1 of passive income in a corporation.

So that it's not a progressive rate of tax, it's a descriptive rate of tax which means depending on the income pool. Uh and where the source of of these are the is it coming from active income or passive income. Okay, so that's the that's the problem. Now what is you know the product that could possibly you know help with this is a properly owned and properly structured whole life or or universal life insurance contract that's designed to uh provide you with a death benefit. Uh you the business owner uh you the business. Now, if we have cleared the first hurdle in suggesting that there is a a valid legitimate need for life insurance, there are different ways of packaging that life insurance. Now, one of those ways, and this is what we're talking about as having a TFSA, is your ability to use that insurance contract to put more money, start accumulating your corporate retained earnings inside a uh legitimate life insurance contract that has a death benefit to it, but can be designed at their discretion for additional premiums.

discretionary premiums uh over the the minimum. And so you can really accumulate a very large amount of corporate capital. Uh to your to your question or example earlier, we had a client that was uh putting in 200,000. We've got another client that's doing 60,000. We have another client that's doing half a million. We're do have another client, he's looking at a million half dollars of uh premiums. Now, that's obviously for very large life insurance, but under the income tax act, again, that beautiful section 148 of the act allows for much and the provisions that are spread throughout the entire uh income tax act, your ability to put more money in over the the contribution minimums, the premiums for that policy. You're able to put additional premiums into that policy. So, what does that really do?

Well, going back to the punitive rates of tax, the passive income, there's no, it's considered these contracts are taxexempt, which means there's no taxable source to income inside. Once that money is inside and growing inside that insurance contract, you're not paying tax on that. So, that's called corporate portfolio enhancement strategy, which is simply taking your passive income and going to zero. The number two thing is the liquidity. Uh many of your business owner watchers uh or viewers may know this as or heard of this as being what's called an immediate financing arrangement. Well, that can be it's not called premium financing. You borrow against the cash value of that policy at your discretion or in a structured loan. Uh it's up to you. 100% of my clients are doing this discretionarily. So they're just building up their capital, having access to it at at their absolute discretion, and being able to use that.

Now, sometimes what they do is they and the the most recommended thing to do is to use the liquidity of that money. The liquidity of that money could be used to make other investments to go into real estate to expand their business. and anything in that realm as a business expense can you can start looking at the uh interest deduction uh which is an additional tax deduction uh in the company uh depending on the structuring you can deduct a portion of the premium that's an additional tax deduction if you're paying a taxable dividend well uh that taxable dividend or salary is a legitimate it meets the purpose test for a legitimate business deduction and therefore that interest deduction as well. Paying yourself a taxable dividend can get you a refund of those previously paid punitive tax rates.

So there's many, you know, these micro uh credits start adding up, right? And we we get nickeled and dimed. And I I because I'm a a certified financial planner, I also love talking about budgeting with people who don't know how to budget. Even doesn't matter what income level you're at, but we get nickeled and dime from those seven $8 Starbucks that we go or you know, just give me another double double at Timmy's and sooner or later that adds up, right? We It's not the big things that give us the problem. It's the little things that we don't pay attention to that add up to be big things. So when we start looking at the multiple source deductions, the tax credits, the the refund of taxes paid plus the ability to not pay any tax on the accumulating values that are embedded inside that insurance contract.

Well, now we're really creating a big ripple out of a few small pebbles. That's really good. So you basically it's a contra it's an insurance contract that you're able to invest your uh your retained earnings inside of that and then that gives you a bunch of deductions and already reduce your tax rate and you're also if I understand properly you're also able to take out through loans and through um IFAS that that you refer to uh taxree right so you're able to withdraw money from that corporate from your corporation taxree that's how you essentially do it is that correct yeah so so if if it's a share shareholder looking to leverage against these loans. There's a couple different ways to do it. Most of the accountants that I work with prefer uh what's called corporate borrowing, which means the company's doing the borrowing, paying out a taxable dividend.

But uh again, if you do it properly, you can do shareholder borrowing. Both ways carry consequences. And it's really important for the business owner to when considering all these things, what is the best fit for their particular situation? Because uh all these these are the I guess you would call it a platform that we're using to put structures in place where we can optimize uh for tax. They're very subjective in terms of how much should I put in, what's the right amount, how should I borrow, when should I borrow, for what reasons should I borrow. This comes down to the client's individual objectives and goals. Understood. That's really clear. I like that. Um, and again, I want to address an elephant in the room and it was it was a stigma for me as well before talking to a lot of people like you and other experts in the space that like as a business owner you always hear about life insurance and it's like ah someone's going to freaking sell me insurance or that's just when I die or I don't want to it's an expense that I don't need.

I'm not going to spend a hundred bucks a month for that. a lot of and I I was a victim of that as well. Thinking about that as as an expense and only for the what even if you're not a business owner, the life insurance is probably different than than if you're a business owner. So, how does that how is that different when you look at it in terms of a tax basically sheltered vehicle, right? When you look at insurance that way, what do you have to say to that business owner to kind of break that stigma for them? Yeah. Well, I'd actually like to flip back to you and say, what was your stigma? What was your stigma? Was was it the fact that, oh, I'm going to provide a benefit for somebody else or I'm not going to get anything out of this during my lifetime?

What was it for you? Yeah. Well, I think it's more like I think business owners, you're you're more of a risk taker, right? So, anytime like it's it's really hard, maybe I'm speaking for I'm speaking for myself, right? Every time you want to reduce risk or doing thing, playing defense is not something cool, right? Right? It's not something you want to do. And yeah, I'm not going to need that. I can wait another five years. I can wait another 10 years. Um, and I have a lot of expenses. I'm not going to not going to spend 100 bucks, 500 bucks, a,000 bucks a month when I could spend that on an employee, on some marketing, on on some sales assets, anything like that. But I think for me, it flipped when I when it when it became, oh, well, it's not for that actually.

Like, yes, these are just added benefit. But the big benefit if you're like I think some of your business owners that you work with, you're you're able to invest a th000 a month, $5,000 a month, $10,000 a month if you want to because the more you are able to invest in that, the more that vehicle grows and the more you can save on taxes. That's how I understood it. Yeah. Is that correct? Yeah. So, you you've hit on a couple of really hot buttons for me. uh number one uh I want the ability to invest but uh these kinds of insurance are not necessarily investments they're allocation it's an it's a capital allocation tool because the number one thing that I believe and and I know that I've talked to many accountants about this in the past having access to a taxexempt pool of capital is superior than having access to a taxable pool of capital let's just start with that premise.

So if I have a taxexempt pool of capital that I can tap onto at any time and and either withdraw or leverage against that asset, then would that be better than having a taxable pool of capital that I can withdraw or leverage against? So we already know that having a taxexempt pool of capital is is better. uh but it's not and should never be construed in my opinion as as an investment. People do need to have investments going along simultaneously along with these insurance contracts. But for me, it's an asset allocation tool. So, it's not that I'm going to have a a liability for a future benefit for somebody else. is that I'm allocating certain specific assets in my business to retain the liquidity and control and management of that so that I can invest so that I can provide for an emergency a liquidity crisis a need an business investment expense an expansion or uh why not consider having this tax exempt pool of capital available to me but the ultimate goal is to provide me with a safe secure retirement where I can have a leveraged retirement, but I can have access to that retirement.

Well, so wait a minute. Let me think. I'm going to have this tax ex uh efficient money available to me to provide me with a tax efficient retirement, but I can tap into that at any time in case I have an emergency. Is that is that what I'm doing? Yeah. But I'm also providing my beneficiaries with something. Yeah. Now, here's the here's the flex to the whole issue. We want to cut CRA out as much as legally possible. And every business owner in Canada has a secret silent partner who sometimes isn't so secret and sometimes isn't so silent. And that's CRA. So, this comes now down to uh what we call postmortem planning issues. Would it make sense to tackle your estate liability on your terminal tax return? You are going to have a large amount of money that's got to go to CRA.

How do you want to handle that? Do you want to would you rather give money to CRA or to your kids? Yeah. So, ultimately what life insurance can be used for and is should be primarily designed for is to provide a benefit to satisfy this this tax liability on the terminal return. But if I could get all these other additional benefits, at least consider it. Yeah. And if if it's cuz again, the way you explain it now, maybe it's just because people don't hear that information, but like when I listen to that, it's a no-brainer, right? Like it makes sense. Why does not every business owner know about that or have that if it's that good? Really comes down to cognitive bias. You know people, there's an interesting thing in psychology called the Dunning Krueger effect.

And the Dunning Krueger effect says as soon as you know a little bit about something, you have a voracious opinion about it. And then the more that you learn about that topic, the more you realize you had know nothing. And then we come into this mature understanding. So we have an opinion based on a little bit of fact. And the more facts or knowledge we get about something, the more understanding that we have about that. So really, people I believe, anybody that I've talked to, um, they're like, "Okay, well, I don't want I don't like life insurance." Okay, well, tell me why. Well, because of XY Z. Well, that's not necessarily the life insurance we're talking about. Yeah. Oh, okay. Well, what do you mean by that? And so with the more understanding that they have the more they can and whether it ends up being the right solution for them or not is really done through a mathematical decision, a logical decision rather than an emotional biased decision.

I'm not saying that life insurance is going to be the right solution for everybody. What I am saying is that if you run the math and the numbers, there is a more valid reason to consider it in in somebody's financial plan. Hm. Yeah. I think when it comes to the these these investments or these capital allocations, it's more of you need to be able to evaluate the the cost of an action, right? And I think that's what you're you're helping out with um through this these vehicles. It's it's making the the business owner or the the people interested into that seeing what are they missing out, right, by not doing this. And sometimes most of the times that cost is far greater. Um and most of the time you don't have to pay for anything, right?

It's just allocating from what I understood just allocating your wealth differently like in different buckets. So there's not there's no money out of pocket like again I was thinking before that you have to spend out of pocket 500 bucks a month or a,000 bucks a month or $2,000 a month. Most of the time it's just your retained earnings that you're reallocating to a different vehicle that allows you all those benefits. Right. Correct. And to be sure there is a cost of the of the policy. These things are there's it's we should never view these insurance contracts as free insurance, right? Because there is a real actual cost, but there is an embedded return in these insurance contracts that can overcome the cost that's embedded within the policy. So net, you're going to still receive the funds that you receive and and do so efficiently.

Uh but uh these are this is another mistake. You know, again, this is just my opinion. Advisors out there that are selling uh Utopia or hey, it's free insurance. It's never free insurance. Okay, that that is a lie. Uh and I think that is clouded because people hear, oh, I can get something for free. That must be a scam, right? Then we come back to this whole thing, well, insurance is a scam. Well, that's because you've been explained it improperly. Yeah, 100%. And I think a recurring theme so far from the conversations for the first episodes that we've been rolling that a lot of the experts like you talk about the proper team. And I think what holds back a lot of business owners is that oh the CPA they've been with for the past 10 years or the the uh they work in silos basically, right?

They don't let their team communicate within each other. Um, so again, I'm gonna flip it on to you. Is what's the number one mistake you think business owners are doing in their tax efficient strategy and the biggest reason why they're not improving that year-over-year? Yeah, that's a fantastic point. Um, I'd love to share a story if I can, please. Uh we've we've just been uh referred a uh a fairly goodsized client uh with a very complicated estate problem and they had just got a new accountant. They had just secured a lawyer who said so tell me about your will and they didn't have one and they're like uh okay well uh what do we what does the will need to do and what does it need to say? Well, the more they opened it up, the more confusing it got because the structure of the client was such that they had started this company 20, 25 years ago and then they added something else and added something else and before you know it, they had six or seven different businesses with six or seven partners with six or seven business structures with six or seven tax problems.

And the reason why is because they never had the advice going into it. They were just uh re they were reacting. They were doing what they thought was necessary at the time, which is fine. But so now the situation that when it came to me from it was referred from another client of mine who's one of the partners in one of their uh two of their businesses said, "These guys have got some issues. Can you help uh them kind of solve this issue?" Sure, we'll take a look at it. So what what I did is I I kind of drew an ORC chart out as they were explaining it to me. And I'm like, "Wow, this is this is going on three pages of notes here." And then I said, "What the next step is is to have a conversation with your lawyer and a conversation with your tax professional, your CPA, and then what we will do is we will create some recommendations." I'm not I'm not the kind of adviser that says, "Okay, well, if you've got this problem, let's, you know, solve it with X." No, we've got to have a cons a consultative approach.

So, I went back to their CPA, went back to the lawyer, said, "Here's some things that I've been looking at with this client. Here's some things I'm thinking about. Can we pull all three of us together into a room or a Zoom and just have a this discussion? The number one problem I see to answer your question is that most clients are hiring peace meal when they can hire an advisory board for the same price that they would do at peace meal. And when you have the level of collaboration at the advisor level who acts as an advisory board or a sounding board to help guide and direct from the three main areas, finance and financial planning, law and tax. uh when you had those three uh cohesive people working together not for their interest but for the interest of the client now the client is going to be really well served.

So here's the outcome of that situation in in this particular example. Uh we're doing a complete reorganization. Uh the lawyer's got some responsibilities, the accountant has some responsibilities. uh we are going to execute a uh an insurance contract for them to help accumulate their retained earnings. They don't need to take it all in salary, but they do want to make some future uh business investments. They are looking at putting some life insurance in place, and they are looking for a a sophisticated retirement plan to be able to handle it all. So, we've got a trust and some uh corporations that we're going to reorganize some of the shares into. uh we're going to defer all the tax on the transaction until such time as the either the trust rolls over or they sell the shares.

Uh so it's a winwinwin for the client because they get a better tax outcome. Uh their their will is now simplified and they're going to be able to put that in place. They're going to have a tax plan in place uh vetted through their CPA and the insurance contract. both the advis all three advisors are not necessarily participating in the implementation of that but they're all providing feedback uh into the client to say this is why this makes sense. So uh I think that um yeah business owners are suffering because they're trying to be the expert. So they'll sit down with their lawyer and said well this is what needs to happen. I'll go to my accountant and tell my accountant. Well why don't you just get the lawyer and the accountant to talk to each other?

Well, because it's billable hours. Well, you're shooting yourself in the foot in order to win the race, right? You're you're not going to be able to see long term if you're looking at short-term expenses or short-term costs. That's really good. Yeah. I was just talking with another guest about the analogy of going to the hospital. Imagine if your cardiologist didn't speak to your oncologist, right, when you have uh cancer, right? What's going to happen? Like that wouldn't happen. And I think most most business owners treat their legal and finance team the same way. So yeah, from what I heard from you, it's really just about just as a business owner looking at your team and are they speaking to each other? Do they all know? Do they all have the same context? And if you're asking, let's say ask your CPA or your lawyer, whatever, like what they know about the other people on the team.

And if they don't know, that might be a sign that maybe you need to find and ask friends or other business owners that are more successful than you. That's oftentimes the best way to get a hold of a team like what you're talking about. Correct. Yeah. So, I've got uh in my own personal life, uh when I started my company, I had a CPA that was doing compliance work and I had a CPA that was a tax adviser. And so, I I knew the wheelhouse Yeah. of both professionals. They're both accountants. I use them both to set up my company as well as a collaborative approach with the lawyer that helped uh draft uh my uh my articles. Uh they they needed all to be uh experts in their area. Um, look, Joey, I am not I I know a lot of different things about a lot of different parts of the finance industry, but I'm never going to claim that I'm going to be able to remember what it I was a mortgage lender 20 years ago, plus 20, 25, 30 years ago.

So, I'm not going to remember what the rules are about qualifying for a mortgage anymore. That's out of my wheelhouse. But because I've 20 years ago made this shift into tax estate and succession planning, um I'm not going to pretend to to not be the subject matter expert on that anymore, right? Or many other things like group benefit plans. I'm licensed to do them, but there's no way that I would do them. I I want to make sure that the right professional advisor who specializes in that is able to tackle that for my clients. So, I refer all that business out to other adviserss that are well beyond my pay grade in that area. I just happen to know corporate life insurance and succession and estate planning uh better than I think I know anything else.

So, that's that's where I focus. That's good. And I think um you're you're you're you're putting the the the dot on the eye right now that like I think my initial hypothesis when I first started this this podcast and this show and and and even preserve wealth group was to was that you're going to get those answers through the right people through the right network. And I think having access to those ultra wealthy strategies is going to be through the right people and the right experts. So that's why I want to kind of build that network and and offer that offer that value and education to the business owners watching that that they can get access that and to that network and it's not as out of reach as some might seem right. You know that's that's an amazing service that you're providing Joey because that's I think uh uh like we said it's education.

It's the same thing as saying that there's lawyers and then there's specialists. Yeah. Uh if you if you are um going through a pretty serious family law matter, you're going to hire a family lawyer. You're not going to hire a criminal defense lawyer to represent you in family court. That would be a little weird. Uh I, for example, I don't do investments. Uh I don't presume to sell investments. So I have me multiple advisors that I partner with that specialize in investments in the same way. I'm not a family lawyer. I'm more of a criminal defense attorney if you will in in terms of that specialization. That's good. And to go back on your points where you talked earlier about I heard you said tax deferral. I think that's a big misconception a lot of business owners have u the difference between tax referral and tax elimination.

What's the difference between both and why does it matter for Canadian business owners to know the difference? Yeah, both are uh good. Deferral is good but elimination is better. Elimination is trumped is the is the trump card of that. So uh so let's just let's just take an example. So, uh, a deferral is when you have as a business, uh, you pay a punitive rate of of tax on your investment income and then when you pay yourself a taxable dividend in the future, you get a refund of that tax. That would be a deferral. Okay? But in reverse, right? You're getting a refund later. You're not getting the refund now. So, that that's that's not really the greatest thing to do is because you're giving an interest free loan to the state uh to give back to you at a later time.

Let's take a look at an RRSP. Now, this is a true deferral. You put money into an RRSP, you get a tax deduction. That tax deduction on your active personal income will be repaid when you start taking it out. And the theory is is that you are going to pay a lower rate of tax than you do paying the tax because you presumably during your working career you're you're having that. Now a TFSA is you're still taking your after tax money and you're you're now sheltering it inside a vehicle where you're no longer paying any tax whatsoever. I I think most Canadians understand what a tax-free savings account is. So now to your saying about tax-free savings account on steroids or one that's corporately owned because TFSAs are only for individuals. How could we replicate that in uh in a corporate setting?

Well, if we're using a properly structured uh even potentially dividend paying whole life insurance contract in order to accumulate your your retained earnings every year, um you're no longer paying tax on that income. As long as that money is sitting inside and paid out through a death benefit, uh there's zero tax on the accumulation. If you leverage it correctly, there is zero tax on the uh leveraging of that money. And there's different ways of leveraging it and some can be potentially taxable. So that's eliminating tax, right? Uh you could put it into a pension, right? which is a very valid uh option in terms of having a business have a individual pension plan or a personal pension plan. You can do those sorts of things. You're getting a deduction of the tax paid in your corporation, but then you're paying it later in your personal name when you're you're taking that defined benefit pension out funded by your company.

So company pays tax, gets a deduction, you're paying tax. What are the tax rates? It's still a deferral. It's not an elimination. Again, not saying either one is bad or good. It's you just have to know the difference. To your point. Mhm. No, understood. No, that that explains it pretty well. And I think both are good, but like you said, you got to strive for the tax elimination. And I think there's a lot of strategies that can come into play. I mean, there's a lot of illegal ways to do that, too, but we're not here. We don't want that. Yeah. No, we don't want that, right? All about legality. And I think people want to pay their taxes. It's not it's not they're not trying to evade or not pay taxes. People just want to pay their fair share.

I think that's what we're trying to educate people on that there is ways that you can still pay your fair share without being screwed over, you know, so or at the mercy of the government. That's a really good point because your fair share is also a little subjective. It is. uh if you if you believe in higher tax and you want to pay your higher tax, then you should do no financial planning. But if you don't want to pay that that really punitive rates of tax or you think you're being overt taxed as an entrepreneur in Canada, you have the ability to arrange your affairs in the most taxefficient manner under law in Canada. Uh that's still the basic premise of tax planning is that we can arrange our affairs in the most taxefficient manner.

So why not do that? No. Exactly. And and what what qualifies a Canadian business owner to take action on this strategy? Like when is the right moment? And you cannot say uh right now or as soon as you hear that. But honestly in a in a serious note, what what's what where does it make sense for a business owner at a is it a certain level, certain amount of retained earnings, certain amount of years, like what what is that requirement or that Yeah. trigger? Yeah, that's a great question. I would say, and it's not necessarily based on how much how many remaining years of active participating time I'm going to have in the business. It's not a it's not a matter of how much money do I have? You know, if I only have a million, uh, is that better than me having $500,000 or $1,000.

There are some minimum thresholds. And and let's start with this. Yeah, having the threshold of a Canadiancontrolled private corporation, a CCPC, which is a privately held company in Canada, is the preferred structure for these uh policies. If you have uh a CCPC and have a sellable entity, uh we may need to do some additional amalgamations or bifurcations of your corporate structure in order to make sure that your entity the the sellable part of your business is sellable for the best tax outcome. And that means if you can qualify for the life that that golden lifetime capital gains exemption, you should arrange your affairs in such a way to save the first uh $1.2 million of capital gains from effective tax. Uh so there's corporate structuring that needs to happen likely in that scenario. But if you have there's a lot of people that I deal with, dentists, doctors, consultants, uh they're professional corporations.

They're either medical or professional corporations where they are the business and they don't need to separate unless there's some legal liability reasons. They don't really need to separate uh from a a capital gains exemption basis but more from a legal liability basis. Uh the accumulation of money may be may be appropriate in your company in your existing structure. It may take a few steps to get there, but generally speaking, in terms of um what makes sense, I'm going to come back to the outcome. What are they trying to achieve? Are they trying to achieve maximum uh uh sheltering on that money? Uh maybe maybe 50, $60, $100,000 is the right uh amount. Uh are they just trying to achieve a death benefit and they don't want any capital accumulation? they just want the the capital uh to go outside of the company in the most tax efficient manner.

Couple hundred bucks a month on a basic premium would be just totally fine. But if we're here talking about, you know, what is the what is the optimal uh thing, then you need to have an amount of capital that is reasonable that you could put into a policy. You could allocate that asset uh and not really worry about it for a couple of years. Okay. So, you have to be you have to have a tax problem. If you're having an income problem with your business, you're you're not ready yet. Uh you're ready you're ready for more term insurance rather than whole life. But if you have an accumulated problem, if you have are starting to have a retained earnings problem, that is the punitive tax that you're paying on your capital in your corporation, you're going to start needing to consider at least as a in conjunction with other planning the use of a properly designed insurance contract uh to help shelter uh some of that capital in my view.

Yeah. No, that's totally accurate. And again, for me, I know that that trigger and I think that could be a good parameter for anybody other business owners is that first tax bill that makes you gasp, right? When you first get that first tax, you're like, "Oh, that that that might be above my fair share." And again, you can you can evaluate, right? Everybody's, like you said, it's subjective. That fair share could be very different from business owner to business owner. But once you start seeing that, ah, that hurts, right? Like I think I could pay a bit less. um then that's where maybe that time that time has come to get the the proper team and the proper and start playing defense instead of just focusing not 100% of your energy on offense. So if it doesn't hurt if that check if you're writing a check to Siri that doesn't hurt then you're not ready.

Exactly. You're fine. You're not ready. Yep. No, that's good. That's good. And I think hopefully we shared a lot of uh of great information and and again that corporate tax exempt solution it it makes a lot more sense now uh that TFSA on on on steroids like we talked about. Um I wanted to ask you again on that note um how does the Canadian tax code allow unlimited or is it unlimited contributions compared and why does the TFA TFSA only 6500? Yeah, that would be awesome if it allowed uh for unlimited contributions. Joey, that uh that was actually in place prior to 1982. So, the 1982 budget, there was a ways and means motion that came through the House and eventually became codified into an act uh under law that that was passed and had royal ascent that it put a cap on the amount of contributions somebody could make into an insurance contract.

From a compliance perspective, it's really, really important. Is there a bonafide need for providing a death benefit to either satisfy a tax liability, an income replacement, like like what is there a bonafide reason for the life insurance? And if there is, now you're kind of off to the races. How do you want to structure that? Different companies have different limitations that they put on their contracts, but under law, there's something called uh this is going to get a little bit more technical, but there's something called the maximum taxable actuarial reserve. And that is defined as a it's a line formula basically that says based on your age uh your gender, your death benefit amount and the duration of payments, how long are you going to expect to pay this policy for? It will set a maximum premium that you could put in over and above the minimum premium that it takes to to purchase the policy.

Now you have this room and there are ways of expanding that room or even lowering the premium with keeping that high high room. So I think about it as two parallel train tracks uh that you have a minimum and maximum contribution on these policies and they can be managed legally managed in a way that still makes it a bonafide insurance contract. There are ways of doing it where in my view it's no longer a bonafide uh uh life insurance contract and then at that point is when clients run the risk of the general anti- avoidance rules in the future in future litigation. I mean it hasn't happened yet but I believe it's uh probably on the horizon. Governments are starving. They're looking for any other way to create tax revenue. And I think CRA is going to uh start uh you know looking is this a bonafide uh uh life insurance contract or not.

Is there a reason to provide the death benefit or not? And if there isn't then if it doesn't if it doesn't if it doesn't sound like a dog, it doesn't look like a dog, if it doesn't wag its tail like a dog, if it doesn't bark like a dog, it's probably not a dog. That's true. That's accurate. That's very interesting. That's good. Um, and let's say that the the Canadian business owner watching this right now that looks at at their tax bill right now and if it was in the past or the ones that's coming up and they are they they think that they are overpaying, right? And they are they are gasping looking at that bill. What do you think would be the first step for them? they don't have anything like that in place.

Um to just get some guidance and like kind of put their their first tippy toe in the water to understand that a bit better and and start recalibrating uh their tax bill. Yeah. So the number one recommendation is you've got to change your mindset as a business owner. You've got to become curious. M you've got to start looking at all other avenues and hopefully they're they're watching this video and or or watching this podcast and saying maybe I better look uh it may you know not be the right solution for me but at least I need to educate myself on the validity of a life insurance contract in my company to help me manage and mitigate my tax. So the first part is curiosity. The second part is start reading. There's there's so many great books.

Uh one that was just published by Kevin War uh about the uh um oh gosh it just the name of it escapes me but it's basically uh the ins and outs of corporate life insurance. That's a fantastic book. There's a uh a book written and it is American book. Uh so you know I would caution that there's some uh tax differences but how to buy whole life by Ryan Griggs it's another fantastic book about the proper way of purchasing a whole life insurance contract and the proper mindset behind it. See mindset doesn't have a border but tax does have a border the but there's general principles in both countries that would apply. Uh the other thing would be is is get the guidance and counsel and advice from somebody who specializes in these types of policies and who has a track record who's certified and qualified to talk about the certification being perhaps a certified financial planner or a which is a CFP or a uh CLU which is the accredited life underwriter or or certified life underwriter or perhaps a uh TEP, a trust and estate practitioner.

Uh these these three designations in the financial planning uh sense are fantastic. Also, the FBA uh family enterprise advisor. These are all people that are well-versed and adept at answering some of these questions. That's the certification part. The qualification part is what's that person's life experience, right? How many policies? How many policies does the advisor have in their corporations? Right? Start asking those questions. Start asking questions about, okay, well, what tangible evidence? Who have you helped and how have you helped them? Uh that that's that's the the qualified part of of that equation for sure. That's really great tactical advice. That's exactly what uh what I wanted out of get out of you. So, thank you so much. Uh, Mike, let me ask you the the last little kicker, call it the legacy question that I want to ask every guest at the end of the show, which is if this episode were to outlive you, right?

What's one lesson that about corporate tax exempt strategies or improving your current tax situation that you would like every Canadian business owner to remember? If you thought to be true turned out not to be true, how quickly would you want to know it? And that carries a lot of that carries a lot of weight behind that statement because if if what you're saying is is that I want to know then you have to be okay in breaking the biases and the understanding that you've been taught through perhaps your whole life. So are you prepared to say maybe my advisor, my mom and dad girl, like how far back do you want to go? If the advice that you were told is possibly incorrect or doesn't apply to you, like I'll give you a quick example.

Robert Kiyosaki uh Kiasaki talks about the four quadrant mindset. The E, the S, the B, and the I. Yeah. My both my mom and dad, God bless them, are E- quadrant mindset. I am not an E- quadrant mindset. So, their advice was given to me under the pretenses of me being an E- quadrant mindset. well-meaning, full of love, but not applicable. Now, on on love and relationship, that's totally different. I'm just talking about wealth creation. I'm talking about making money. I'm talking about stability versus purpose, right? Totally different advice that you would be given. So, don't discount the fact that the mindset that the advice that you're being given is well intentioned, well-meaning, but maybe not applicable to you. So if you thought to be true turned out not to be true, how quickly would you want to know it?

And therefore, how quickly would you be willing to dispense of your opinions and cognitive bias in order to get the answers you're really looking for? Mike, that was powerful. Thank you so much for your time. Thanks, Joy. Appreciate you. Appreciate the work that you're doing and uh keep up the great work. Awesome. Thank you so much. So, if you're a business owner and Mike opened your eyes through those tax exempt corporate strategies and you want to learn more about even more breakdowns and how this could be available for for you, well, all I'm asking is that you subscribe to the channel. It's going to be a new episode dropping every single Monday starting right now. And we'll see you guys on the next one.