Every Canadian InCorporated Person's Dilemma

How to Take Money (Retained Earnings) Out of Your Corporation Tax-Free Using Corporate-Owned Life Insurance (COLI)

As a small business owner or incorporated professional in Canada, you’re likely sitting on a growing pool of retained earnings inside your corporation. The question is: How do you access those funds efficiently—without triggering hefty taxes?

Enter Corporate-Owned Life Insurance (COLI): a powerful, often overlooked strategy to extract wealth from your corporation tax-free, protect your family or business, and build long-term financial security.

The Problem: Retained Earnings Are Trapped

Retained earnings are the after-tax profits your corporation holds onto rather than paying out as dividends or salaries. While they can be reinvested into the business, many owners accumulate them for future needs—retirement, succession planning, or simply wealth preservation.

But withdrawing those funds personally means facing:

• Dividend tax, especially painful in high-income provinces.

• Capital gains tax if you’re trying to sell the business.

• Double taxation at death (once inside the corporation, again when paid out).

So, what if there were a way to convert those retained earnings into a personal, tax-free legacy?

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The Solution: Corporate-Owned Participating Whole Life Insurance

Corporate-Owned Life Insurance (COLI), particularly Participating Whole Life Insurance, offers a unique combination of:

• Permanent life insurance coverage,

• A tax-sheltered investment component (cash value growth),

• And a mechanism to extract retained earnings tax-free upon death through the Capital Dividend Account (CDA).

Here’s how it works.