As a business owner, you may be aware that when you dispose of shares in your business you could receive an exemption on all or a portion of the capital gains that ordinarily would be taxable. This is due to the Lifetime Capital Gains Exemption which says that, for 2015, up to $813,000* of capital gains is exempt from taxation.
The Lifetime Capital Gains Exemption (LCGE) is available to individuals who are disposing of or deemed to have disposed of:
- Qualified Small Business Corporation (QSBC) shares;
- Qualified farm property; or
- Qualified fishing property **.
Transferring a Life Insurance Policy to a Corporation
The Corporate Extraction Strategy involves transferring a personally owned life insurance policy to a corporation for its fair market value (FMV). When handled properly, it will result in withdrawing capital from the corporation tax free!
The preferred candidates for this strategy:
- Own a life insurance policy that they wish to maintain;
- Own all the shares in a corporation;
- Are usually older and/or would be rated or declined for life insurance due to health concerns. Read more
Focusing on growth is harder when your co-owners are your relatives
by Fred Pidsadny for ProfitGuide.com
Family-run businesses are like elastic bands—they can be stretched only so far, in different directions, before tensions cause them to snap. Those who run family businesses know that stress can often be elevated by forces that don’t exist in non-family firms, from hiring obligations and bloodline silos to next-generation financial demands to under-performing family members. It’s one thing to discipline or even fire a stranger, quite another to turf a brother or daughter. For such businesses, finding a successful balance is an ongoing challenge.
So how can family-owned businesses avoid conflict and focus on growth? For a number of years I’ve been working with a company run by three brothers, each with their own family and their own unique take on strategy and succession planning. They have benefited tremendously by learning and practicing what I call the four Cs of strategy execution for owner-managed businesses:
Owners of very successful private corporations are well aware of the importance of cash flow. Many are protective of how they allocate corporate capital so that business ventures are adequately funded and investment opportunities are not missed.
The Immediate Financing Arrangement offers an opportunity to provide life insurance coverage and accumulate wealth on a tax-advantaged basis without impairing corporate cash flow.
What is an Immediate Financing Arrangement (IFA)?
An IFA is a financial and estate planning strategy that:
- Combines permanent, cash value life insurance with a conservative leverage program allowing the dollars allocated to the life insurance premiums to do double duty by still being available for business and investment purposes;
- In the right circumstances and when structured properly so that all possible tax deductions are used, an improvement in cash flow could result.