What does moving a contract from the corporation to the shareholder cost in tax?
One signature can produce two separate charges. The company is treated as having disposed of the contract, which can put an amount into the company's income for that year, and the shareholder can be assessed on the value received for nothing. Both have to be priced before the change of ownership is signed, never afterwards.
What kind of answer this is
- Claim type: Tax or regulatory position
- Claim type: Requires another professional
- Jurisdiction: Canada wide
The rules governing a transfer between parties who do not deal at arm's length are technical and have been amended. Only a CPA or a tax lawyer working from the current figures can price a particular transfer.
How it works
A move between parties who are not at arm's length is governed by ITA s.148(7), which fixes the amount the company is treated as having received rather than letting the parties choose it. The second charge comes from the benefit rules and is measured on the shareholder.
The cost or the catch
It is presented as tidying up, and it is a taxable transaction in two places at once. A fair market value has to be established by somebody qualified, and a number picked by the people on either side of the transfer is the number a review will look at first.
Where this answer may not apply
- The rules changed for contracts transferred after a date in the past decade, and an older transfer was measured differently.
- Where the shareholder pays full value for the contract, the analysis is not the same as where nothing is paid.
- A transfer to a spouse, a child or a trust raises further questions this answer does not reach.
- Where the contract is pledged to a lender, no transfer can happen until the pledge is released.
What to verify in your own contract
- The contract's tax cost, its cash value and its fair market value, each stated separately and in writing.
- Whether a valuation of the contract has been obtained, and by whom.
- What consideration, if any, the shareholder will actually pay.
- The amount the CPA expects to be included in the company's income for the year.
- The amount the CPA expects to be assessed to the shareholder personally.
Continue to the full explanation
Prepare the questions for a CPA, a lawyer and an insurance professional.
Sources
- Income Tax Act s.148(7), Justice Laws Canada, verified 2026-08-30
- Canada Revenue Agency, published guidance on shareholder benefits, verified 2026-08-30
Accountability and disclosure
- Written by
- José Salloum
- Professional capacity
- Financial security advisor, Canadian Wealth Creation Centre Inc., operating as IBC Financial
- Reviewed by
- Tax and corporate tier, reviewed by a qualified Canadian tax professional before publication
- Jurisdiction
- Canada wide
- Last reviewed
- 2026-08-30
- Version
- 1.0
- Compensation disclosure
- Canadian Wealth Creation Centre Inc., operating as IBC Financial, may receive insurer paid compensation if a policy is purchased. It takes the form of first year compensation followed by renewal compensation, and the amount varies by insurer, product, age, premium, contract design, riders and the arrangement with the managing general agency. No single figure would describe every contract honestly, and none is published here.
- Report a correction
- Info@ibcfinancial.com. Write without a policy number, medical information or account details.
Last reviewed 2026-08-30. By Jose Salloum, Financial Security Advisor.