Markham: The Money That Never Leaves the Company

Your company earns the money and your company keeps it. In a household that works through a private corporation, the surplus never arrives in a personal account at all. It sits inside a taxpayer that has a life of its own.

This page is written for the incorporated professional, and for the house where three generations share one address or one street, because here both are ordinary rather than remarkable.

Every client relationship, every piece of advice and every insurance product comes through Canadian Wealth Creation Centre Inc. and its duly certified representatives. IBC Financial is the education platform and trade name. It holds no licence, distributes nothing, and gives no individualised advice.

Where the money sits when the household owns a company

A household here finances what every household finances, and pays somebody else for the use of the capital. A car, a renovation, an office fit up, a first year of tuition.

What differs is where the money stands while that happens. Not in a chequing account and not in a personal portfolio, but inside a company as retained earnings, waiting for a decision nobody has scheduled.

The household lives on what it withdraws. That figure is set by a payroll or a distribution decision, and it bears little relationship to what the family is worth on paper.

Our mission is to help Canadians be wealthy, which for this reader begins with capital that already exists rather than with capital nobody has earned yet.

The question an incorporated professional is never asked

Where should the company's surplus live, and who controls it while it lives there?

Nobody around the file is engaged to ask. An accountant is asked to reduce tax and to file on time. A lender is asked for terms. A payroll service moves an amount somebody else set.

So it is answered once, early, by whoever happened to be selling that quarter, and the answer runs for twenty years unrevisited.

Households that do ask it decide differently. Not because a cleverer product appeared, but because a strong income with no capital under personal control is one position rather than two.

Infinite Financial Sovereignty®, in plain words

Infinite Financial Sovereignty® is a registered trademark of Jose Salloum, and it is this practice's name for one idea pursued with discipline over a lifetime: that a family, and the company it owns, should be their own source of capital.

The underlying approach is the one Nelson Nash set out in his book and named The Infinite Banking Concept®, a registered trademark of Infinite Banking Concepts, LLC. Naming the author is not decoration. It is whose idea this is.

In practice it means holding capital where it keeps working while it is used. A participating whole life contract issued by a federally regulated insurer accumulates a contractual value. When capital is needed, an advance is taken against the contract rather than from a lender.

Repayment runs on a schedule the owner sets rather than one imposed as a condition of approval, and the contract continues to work while the advance is outstanding.

None of it is free or quick. The insurer charges interest on an advance. Costs fall heaviest in the early years. Dividends are declared at the insurer's discretion and are never guaranteed. It rewards decades and punishes impatience.

What it looks like in a Markham household

A software consultant invoices through a company she owns entirely. Years of surplus have accumulated inside it, and nobody has asked her what that surplus is for or when it comes out.

An engineering practice near the Highway 404 corridor has two shareholders. Their agreement says the survivor buys the other's shares. It does not say where that money comes from, and neither has read it since signing.

A professional corporation holds most of one family's wealth. The mortgage was arranged against personal income that is a fraction of what the company earned in the same year.

A house in Unionville holds a couple, their parents and an adult son. Three incomes, one property, two sets of obligations running in opposite directions, and no document describing any of it.

None of these people made a mistake. They were advised competently on the questions they asked, and nobody was engaged to ask the rest.

Who should own the contract, the shareholder or the corporation

This is the first genuinely technical decision on the file, and it is made before an application rather than after one.

Corporate ownership funds premiums with dollars not yet drawn out. That attraction is real, and it is roughly a third of the picture, so an owner who stops reading there has decided on a third of the information.

A corporately held contract sits on a balance sheet. A lender assessing credit reads it, and so does a buyer conducting due diligence. Its accumulated value forms part of what a share qualification test measures, which matters at a future sale.

Personal ownership keeps the contract outside all of that and funds it with dollars already taxed in your hands. Simpler, heavier on personal cash flow, and it does not complicate a later transaction.

Take it to your accountant with the corporate chart in front of them. Corporate owned coverage sets out the mechanics here in plain terms so that meeting starts further along.

The corporation is a taxpayer with a life of its own

A company does not die when a shareholder does. It carries on filing, holding, owing and being owned, and the only thing that has changed is who holds the shares.

Shares of a private company are not cash. They cannot be spent, they are often difficult to value, and there is frequently no buyer ready for them in the week one is needed.

So an estate can be rich and short at once. Value sits in a company while obligations fall due in money, and the usual answer is a sale made under time pressure.

That gap is the whole reason corporately held coverage is discussed. It is a funding job rather than a growth one, and the sizing question is what will be owed and whether cash will exist to meet it.

What a corporately held contract does at death

The proceeds are received by the corporation rather than by a person, which is the difference every other consequence flows from.

Federal tax law contains a mechanism called the capital dividend account. It is a notional account tracked on a private company's own records, and life insurance proceeds received by a corporation are among the items the rules address. That the mechanism exists is the whole of what a page like this one may usefully say.

This page states no conditions, amounts or thresholds because doing so would be tax advice, and this practice does not give tax advice. The computation belongs to your accountant, working from the corporation's records, and the drafting belongs to your legal counsel.

Ask for both answers in writing before an application. Who owns the contract, who is named, and what the corporation does with the money afterwards are three separate decisions.

Retained earnings, and capital that is careful to a fault

Money left inside a company is often left there because nobody decided anything. It accumulated, it was safe, and no meeting was booked to ask what it was for.

Idle surplus has a cost that never appears on a statement. The company earns little on it while the household finances a car or an education through somebody else and pays interest for the privilege.

A company paying interest on one side of the ledger while holding idle cash on the other is financing itself twice, and few owners examine both sides at once.

Where that surplus should sit is your accountant's question, and the corporation's own profile can turn on it. Incorporated professionals and retained earnings sets out the shape of the problem here without pretending to answer it for you.

Three generations under one roof

A plan in this city frequently has to hold three generations rather than two. Parents in the house or on the street, a working couple in the middle, and adult children who have not yet moved out or have moved back.

The middle generation carries both ends. It funds an education at one end and supports parents at the other, out of one income and one company.

Obligations that run in two directions are rarely written down together. Each arrived separately, and no worksheet this household has been shown has a line for either.

Property makes it sharper. A house cannot be divided among children the way money can, and where one child lives in it and another does not, an equal division on paper produces an unequal one in fact.

Capital arriving outside the estate is what lets a family keep a property rather than sell it. The instruments that carry the intention belong to an Ontario estates lawyer, and estate planning sets out how they fit together before you sit down with one.

Who it suits here, and who it does not

It suits a household and a company with durable surplus, meaning a normal year that produces more than it spends. A strong year is not surplus.

It does not suit a household without that surplus, nor anybody who might need the money back within a few years, because an early exit is a permanent loss rather than a poor return.

It does not suit an owner who has not settled the ownership question. That conversation happens with an accountant first, in that order, and reversing them would be selling rather than advising.

It does not suit somebody shopping on rate of return. Judged that way it usually compares poorly against a market portfolio, and the objections and the risks say so here in our own words.

We will tell you which one you are in the first conversation, at no charge. Often the answer is no, and a no in half an hour beats a yes from somebody who wanted the sale.

What does not differ, whatever you have been told

The contract itself. A participating whole life policy from a federally regulated insurer works the same in Markham as in Moncton. The guaranteed schedule, the advance provisions and the non-forfeiture options are not local.

The Income Tax Act is federal. The exempt test, the adjusted cost basis and the treatment of proceeds received by a named beneficiary are national, as are the corporate rules sitting behind the ownership decision.

The mechanics of the contract are national too. How a policy actually works sets out the value, the advance and the paid-up additions in plain terms, and none of it changes with a postal code.

Assuris covers Canadian policyholders within published limits. It is not a government guarantee. The guarantees in a contract are the obligations of the issuing insurer first.

So be sceptical of anybody offering a Markham product. There is no such thing as life insurance in Markham that differs from life insurance anywhere else, and the offer tells you what kind of firm is making it.

The Ontario rules are on the Ontario page, not this one

Markham sits in Ontario, and the provincial layer is answered in full elsewhere rather than repeated here in a thinner and less useful form.

The regulator, the two advisor titles restricted by statute, and the tax calculated on the value of an estate are provincial, so they read identically in Markham, in Unionville and in Kenora.

The Ontario page carries them, including how to check a licence in the public register at no cost, and why that estate charge is described there by its mechanism rather than by a figure that would go quietly out of date.

Read it once and come back. Nothing on it changes because a company files from an address off Warden Avenue, and the other cities are listed together for the same reason.

Markham specifically, rather than Ontario generally

The difference is the reader, not the law.

This is a place of private corporations. Technology, engineering, design, clinical practice, professional services and small manufacturing, much of it carried on through a company the worker owns rather than through employment.

That single fact reorders every question. For a salaried professional the first question is how much income to replace. Here the first question is who owns the contract, and the second is what a company does on the day its shareholder is gone.

The household shape reorders them again. Where three generations share an address, the person insured supports people above and below at once, and a salary multiple has counted neither.

A neighbouring city page with the name swapped would be worthless, which is why the page for a working owner whose capacity and whose company are the same asset is Vaughan, and the page for a household earning through physical work is Hamilton.

The order to do it in

Read your shareholders agreement, specifically the funding clause. It costs nothing, it takes an evening, and it is the item here most likely to be broken in a way that appears only at the worst possible moment.

Then check who is named on every contract you hold, personal and corporate, primary and contingent, including anything through a group plan. The insurer pays whoever is named rather than whoever was intended.

Then take the ownership question to your accountant with the corporate chart in front of them, before anybody prepares an application. It is easy to get in the wrong order and hard to unwind.

Then write the list of who depends on this household, above and below. That list is the input every later decision runs on, and almost no household of this shape has ever made it.

Three of those four cost nothing and earn nobody a commission, which is worth knowing about the order in which they are usually suggested.

Questions worth asking in a Markham meeting

Should this contract be owned by me or by the corporation, and what does each choice cost me at a future sale?

What happens to my shares, and to the company, on the day I die?

Who is named on every policy I hold, personal and corporate, primary and contingent?

What does the guaranteed column show on its own, without the dividend column beside it?

Which approved credential supports any title you use, and from which approved body?

Five questions, none of them technical, and every one of them answerable in a first meeting by anybody who should be sitting in it.

The summary, if you read nothing else

Your wealth is inside a company, and the company is a taxpayer that outlives you. That one fact separates this file from a salaried one more than anything about income does.

The question is not which product to buy. It is who performs the financing function for the household and the corporation behind it, and whether that could be you.

Three things sit on this file that are absent from an employee's: who owns the contract, what the corporation does with proceeds it receives, and how a plan holds three generations instead of two.

Two of the three can be started this week for nothing. Read the funding clause, confirm the designations, and do both before anybody prepares anything for you.

Then find out whether this belongs in your situation. Half an hour, no cost, and an honest answer either way.

What happens in the thirty minutes

We ask what the company and the household finance, and on whose terms. Equipment, premises, tuition, a property, and where the repayments come from.

We ask who depends on you, above and below. Not a salary multiple, but named people, amounts and end dates.

We look at whether there is durable surplus. Not a strong year. A normal one, in the company and the household together, because for an owner they are one balance sheet with a line drawn through it.

We tell you plainly whether this belongs in your situation. Where the answer is to fix a document and stop there, the matter ends there and you have gained an answer nobody was paid to give you.

It costs nothing. Book a conversation, or read the cornerstone guide first if you would rather arrive already knowing the subject.