The Accountant Asked to Approve This, and What to Check

A client arrives with an illustration, a printed summary and a question that is really one question: is this a reasonable thing to do.

The person who answers it is not the presenter. It is the accountant, who did not attend the meeting, was not paid to attend it, and will be blamed if the answer turns out badly.

This page is written for that reviewer. It is not a proposal. It is a briefing, with the concessions stated first, so that the mechanism can be checked and the arrangement can be refused quickly where refusal is right.

Why this page is addressed to the person likeliest to say no

Because a page written to persuade a reviewer has already failed. A professional whose job is to test a proposition can tell within a paragraph whether a document is arguing or informing, and the first one is discarded.

Because the reviewer is the control that actually works. Suitability rules, disclosure obligations and a licensed representative's duties all matter, and none of them sits as close to the client's own numbers as the person who prepares the corporate return.

And because the questions worth asking are not secret. They are simply tedious to assemble, they cut across insurance, corporate tax and succession, and nobody selling anything has an incentive to write them down in one place.

The mechanism, stated so that it can be checked

Capital is held inside a participating whole life contract issued by a federally regulated insurer. The contract carries a guaranteed schedule of values from the insurer, and a second set of values that depends on dividends credited annually at the discretion of the insurer's board.

When capital is needed, an advance is taken against the contract from the insurer rather than arranged with an outside lender, on the terms the contract sets, and the insurer charges interest on it. The contract continues to participate on its own terms while the advance is outstanding, which is the feature the whole approach turns on and the one most often overstated.

The owner then repays the advance on a schedule of their own setting. That repayment is the discipline, and where it does not happen the arrangement has simply become borrowing on unusual paper at an unremarkable rate.

Two features of the contract carry most of the weight and both are worth testing. The guaranteed schedule is a contractual obligation of the insurer and can be read directly from the policy document. The dividend scale is not a rate, is not promised, and reflects the insurer's experience on mortality, expenses and the investments held in the participating account, so a scale reduced in a difficult decade is an ordinary outcome rather than a failure of the contract.

Nothing in that sequence removes interest, defers a deduction, or converts a premium into an expense. What it changes is which counterparty performs the financing function and receives the margin on it, which is a narrower claim than the one usually presented and the only one that survives review.

What the tax treatment depends on

On facts about the particular corporation, and that is not a hedge. Every statement below is a mechanism rather than a rate, a threshold or a test, because a figure typed onto a page goes stale silently and a reviewer relying on a stale one is worse off than one who had none.

Growth accumulating inside the contract is not taxed annually while the contract remains exempt under the regulation governing exempt status. That status is maintained rather than inherent, it is tested, and a contract amended later can fail it.

Premiums are generally not deductible. A narrow exception can apply where a policy is assigned as collateral for a loan used to earn income, subject to conditions that must be satisfied rather than assumed.

On death, the amount by which the benefit exceeds the policy's adjusted cost basis is credited to the Capital Dividend Account, from which a capital dividend may be elected. The credit is the excess and not the whole benefit, the adjusted cost basis moves across the life of the contract, and the election is a filing.

Whether corporate ownership helps or harms a particular file depends on the whole balance sheet, including the investment income position, the intention to sell shares one day, and the asset tests attaching to the lifetime capital gains exemption. Where the honest answer is that it depends on the structure, that is the answer, and it is yours to reach.

The shareholder benefit question is the one that surfaces years later. Where one entity pays a premium and a different person or entity is advantaged by that payment, a benefit can arise for whoever was advantaged, and it is typically discovered on an audit or during a sale, covering several years at once. The arrangement where a shareholder borrows personally from an outside lender against a corporate policy pledged as security is the version of this that reaches an accounting office most often, and it should be settled before an application is signed rather than afterwards.

The concessions, stated before the argument

The early years are poor and no design removes that. The costs of a participating contract fall heaviest at the start, so accumulated value in the first years is materially less than the premiums paid. A client who may want the money back inside a few years is not a candidate, and an early surrender is a permanent loss rather than a postponement.

The cost of insurance is real and it sits inside the contract. It is deducted before anything accumulates. A participating contract is priced as a bundle, so that charge is not shown as a line the way it is on an unbundled product, which is a genuine limitation on what an illustration can be tested against.

A badly designed contract is a bad idea. Weighted wrongly, priced beyond what the client can sustain in a weak year, or sold without any discussion of repayment, it fails on its own terms and no amount of correct tax analysis rescues it.

And a well designed one is still not for everybody. That is the sentence this page exists to make credible, and it is expanded on below at more length than the argument itself.

The opportunity cost, which is the objection worth taking seriously

Measured as a rate of return, this has generally compared poorly against a diversified equity portfolio over a long horizon, and any presentation implying otherwise should be set aside on that basis alone.

What the contract supplies is not return. It supplies a contractual floor from the insurer, a death benefit present from the first year rather than accumulated toward, a value that does not move with a market on the morning capital is needed, and treatment on death that a portfolio does not have.

Those are insurance properties, and they are worth what they are worth to a particular client. Participating whole life insurance is an insurance product and not an investment, which is a difference in purpose rather than in marketing.

The comparison also has to include what the client would otherwise actually do. A portfolio comparison assumes the alternative dollars are invested and left alone, and a reviewer who has seen the same client's history knows how often that assumption holds.

And the comparison should be stated in the client's own units. A percentage difference over decades is easy to present and hard to feel, while the same difference expressed as what the business would have to keep contributing, and for how long, is a number a client recognises. A reviewer who converts the presentation into that form usually finds the conversation becomes shorter and more honest in both directions.

Infinite Financial Sovereignty®, and whose idea the underlying one was

The underlying idea is not this practice's. The method Nelson Nash named The Infinite Banking Concept® is a mark of Infinite Banking Concepts, LLC, described in his own writing, and neither Canadian Wealth Creation Centre Inc. nor Jose Salloum is affiliated with that organisation or endorsed by it.

Infinite Financial Sovereignty® is this practice's own registered mark, and it names one narrower discipline carried out over a lifetime: that a business should be its own source of capital for the purchases it makes repeatedly.

Naming the marks matters for a reviewer for a practical reason. Material in this field circulates with the terminology attached to claims their originator never made, and a presentation that will not say plainly whose method it is describing is unlikely to be precise about anything else.

The questions worth putting to whoever presented it

Show the guaranteed column on its own. Then the same contract illustrated at a reduced dividend scale, and then the reduced paid-up values. Those three views bracket the outcome far better than the headline page.

What is the split between base coverage and deposits, and why that split. The answer reveals both the intended use of the contract and how the presenter is compensated, and a presenter who cannot describe the split has not designed anything.

What premium does the client have to sustain, and in what kind of year. Then ask what happens in a year the client cannot, and expect the answer to include the words that describe a reduced paid-up contract.

Who owns, who pays, who is named, and what happens if those three are not the same entity. The structuring consequences are set out under corporate-owned life insurance.

And what are you paid on this recommendation, and what would you be paid if the client did nothing. Canadian life insurance is not sold under a fee-disclosure regime and no schedule is owed, but the willingness to say plainly that a commission is paid by the insurer is informative.

The answers that should end the review

Any figure for a rate, a threshold or a limit offered without a source and a date. That is the single most reliable signal available, because it costs nothing to be careful and the people who are careful are careful about everything.

A dividend described as a rate. Dividends are declared annually at the discretion of the insurer's board based on the performance of the participating account, and past dividend performance does not indicate future results.

An advance described as though no interest were charged, or a projection presented as a certainty, or a description of the arrangement as tax free.

And a short answer to who this does not suit. A presenter who has never had to give that answer at length has not been refused often enough to have thought about it.

Who this does not suit, at length

A business without durable surplus in a normal year, as distinct from a strong one. Surplus that appears only in the strongest of the last five years is not the raw material this requires, and reaching for it is itself the answer.

Anyone who may need the capital back within a few years. This is the single commonest reason a file should be refused, and the loss on an early exit is permanent rather than a matter of timing.

A client roughly within a decade of leaving the business. The early costs will not have been recovered and compounding has no time to work.

A business carrying expensive debt. Repaying it is usually the better use of the same dollar, and saying so costs the practice writing this page a sale it would otherwise have made.

A client who wants to be compared on rate of return, who will be disappointed by an honest comparison and should be, because they are asking the contract to be something it is not.

A household or business without adequate disability coverage, since earning capacity is the asset that every other arrangement quietly assumes will continue.

A client who cannot state the purpose in their own words. Where the purpose comes back as the presenter's phrases repeated, nothing has been understood and the arrangement will not survive its first difficult year.

And any file where the presenter will not answer your questions in writing. That is not a judgment about honesty. It is a judgment about what will be available to you in three years when somebody asks what was represented.

The reviewer's own practice, which nobody writes for

An accounting practice has every problem it diagnoses, and rarely a file of its own. Partnership or shareholder agreements with buyout terms that were drafted carefully and funded casually. A client list whose value depends on relationships that transfer poorly. Work in progress and receivables that are not cash. And a founder whose departure is the event the agreement was written for.

The buyout obligation is the part most often unfunded. An agreement obliging surviving partners to purchase a departed partner's interest is a promise requiring capital on a date nobody chooses, and where the capital is assumed rather than arranged the agreement becomes a negotiation at the worst possible moment.

Succession inside a professional firm is also slower than in an operating business. Clients follow people, a successor has to be visible to them for years before a transition, and the value of a practice that has not done that work is smaller than its billings suggest.

There is also the difficulty of reviewing a file you are inside. The same professional who would not let a client approve their own valuation is frequently the only person who has ever looked at the firm's own agreement, and the reasons given for postponing that review are the reasons a client would be told are not good enough.

None of that is an argument for a contract. It is an argument for running the same enquiry on your own file that you run on a client's, ideally with a second professional who is not you, and the succession process sets out the sequence.

What stands behind the contract

The contractual obligations of the issuing insurer, and nothing else. They depend on that insurer's continued solvency and they are not backed by any government, which is a materially different position from a deposit at a chartered bank.

Assuris protects Canadian policyholders within its published limits where an insurer fails. That is meaningful and it is not the same thing as deposit protection.

Dividends are not guaranteed. They are declared annually at the discretion of the insurer's board based on the performance of the participating account, and the guaranteed schedule and the projected values above it are two different columns on the same page.

Who you are dealing with

IBC Financial is the education platform and trade name of Canadian Wealth Creation Centre Inc. Every client relationship, every piece of advice and every insurance product comes through Canadian Wealth Creation Centre Inc. and its duly certified representatives, and this page is education rather than advice about any particular file.

Everything here is written by somebody paid a commission by an insurer when a contract is issued, which is stated at the foot of every page on this site and is a reason to check the arithmetic rather than to accept it.

The corporate structuring sits under business owners, the mechanism of the contract itself is in how a participating policy works, the treatment of an advance is under policy loans, and the narrower case of a professional corporation holding investments rather than an operating business is set out for incorporated physicians.