What makes a policy “exempt”?

Staying within legislated limits on how much investment can ride inside the insurance. Within them, growth is not taxed annually and generates no AAII.

How does the CDA credit work?

At death the corporation receives the benefit; the amount above the policy’s ACB credits the CDA and can be paid to the estate tax-free by election. ACB declines with age via NCPI, so the credit approaches the full benefit near life expectancy.

What if I need the money while alive?

That is the IFA (borrow early, redeploy) and IRP (borrow in retirement) territory — both build on this same policy chassis. Run those calculators next.

COLI vs Taxable Portfolio

Exempt growth, the CDA credit, and what carrier illustrations really promise (and don’t) — anchored to the book’s July 2026 illustration.

★ CHAPTER BRIEF

On the book’s carrier illustration (male 45, non-smoker, $100,000 × 10 years), corporately-owned participating whole life projects a $7,061,352 death benefit at 85 on the current scale — $2,285,925 guaranteed. Growth inside the exempt policy generates zero AAII while alive, and the death benefit less ACB credits the CDA for tax-free distribution.

COLI attacks both corporate tax problems at once: the annual ~50% drag on passive income (exempt growth isn’t taxed annually) and the grind (exempt growth isn’t AAII). At death, the ACB has decayed toward zero, so nearly the entire benefit passes through the CDA tax-free — the corporate dollar’s cleanest exit.

The honest test is the one this page runs: the same deposits in a taxable corporate portfolio, compounded with real drag, versus the illustrated and guaranteed columns. The gap is usually large — and so is the gap between the current scale and the guarantee. Both numbers belong in the decision.

★ KEY POINT

Insurance is bought with health as much as money. Underwriting comes first — the structure conversation is worthless if the insurability isn’t there.

⚠ WARNING

Illustrations are not promises. Dividend scales change; the book’s own example shows a $4.8M swing between current scale and guaranteed. Do not treat projected death-benefit ranges as promises, and never buy for the projection alone — the guaranteed column must still make sense for you.

Your numbers

Annual deposit

The book’s anchor illustration is $100,000 × 10.

Deposit years10

Illustration scale

Comparison portfolio return5%

…of which interest-taxed40%

Suitability pre-check

The book’s six conditions — COLI fits when most of these are true:

Retained earnings the business will not need for operationsPermanent insurance need or estate intention (not a pure investment motive)Insurable health — underwriting comes before any structureComfort holding for decades; early surrender destroys the economicsA CPA who will file the T2054 election when capital dividends are paidThe grind problem is real for you (AAII at or near $50,000)

0/6 — probably not your tool yet; simpler structures first.

Illustrated death benefit at 85

$7,061,352guaranteed floor: $2,285,925

On the book’s carrier illustration (current dividend scale), $100,000 × 10 years points to a death benefit around $7,061,352 at 85 — nearly all of it crediting the CDA for tax-free distribution to the estate. The same deposits in a taxable corporate portfolio reach about $2,825,494 after annual tax drag. To match the policy’s legacy, the portfolio would need roughly 5.8% after corporate tax (~11.6% pre-tax if interest-taxed) — every year, for forty years. The policy also avoids about $48,823/yr of AAII by year 10, protecting the small-business rate. None of this is promised — the guaranteed column is $2,285,925.

⚠ Illustrations are not promises. The guaranteed column ($2,285,925) is the only number the carrier must honour; T2054 elections are required for capital dividends.

At age 85	Value	Estate route
Policy — current scale	$7,061,352	CDA → tax-free
Policy — scale −1%	$5,042,394	CDA → tax-free
Policy — guaranteed	$2,285,925	CDA → tax-free
Taxable portfolio	$2,825,494	taxed on deemed disposition

Figures as of July 2026 · Ontario basis · Educational illustration, not advice — confirm current rates with your CPA.

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Questions to ask your advisor

Ask your Insurance

Show me the guaranteed column first, then current scale and scale −1% — and this comparison against a taxable portfolio on my numbers.

Ask your CPA

How would premiums flow on my T2, and who files the T2054 when capital dividends are eventually paid?

Ask your Tax counsel

Does the corporate ownership structure (Opco vs Holdco) put the policy or the CDA at risk?

Continue in book order

From Chapter 5Corporate Investment-Income Comparator From Chapter 9IFA Stress-Tester From Chapter 11IRP True-Net-Cost Comparator

Educational illustration, not advice. This tool is provided for educational purposes only and does not constitute financial, tax, legal, accounting, or insurance advice. Results are estimates, not promises — hypothetical illustrations are projections only. Figures use Ontario rates as of the date stamped above; rates and limits change. Confirm current figures and your specific situation with a CPA, tax lawyer, and licensed insurance advisor before acting.