Are IFA premiums deductible?

No — never. Only the loan interest may be deductible, under the ordinary interest rules, when the borrowed funds earn qualifying income. A small collateral-insurance deduction can apply where the lender requires the policy — specifics for your CPA.

When does an IFA make sense?

When the insurance makes sense on its own, the business genuinely earns more on capital than the after-tax borrow cost, and someone owns the annual paperwork. All three, together.

What’s the difference between IFA and IRP?

Timing and purpose: IFA borrows during accumulation to keep capital in the business; IRP borrows in retirement to create spendable cash flow. Same chassis, different decades.

IFA Stress-Tester

Debt, not magic: net carry, break-even borrow rate, and the with/without comparison to demand from any pitch.

★ CHAPTER BRIEF

An IFA funds a permanent policy, then immediately borrows back most of each premium’s cash value and redeploys the capital in the business — the carousel. Done right, the corporation holds the policy *and* keeps its capital working, with loan interest potentially deductible under paragraph 20(1)(c). Done wrong, it is leveraged insurance bought on an illustration.

The book’s framing is deliberately deflating: an IFA is debt, not magic. The premiums are never deductible. The policy is the same policy. What the arrangement adds is leverage — and leverage has a price (the borrow rate) and a condition (the deductibility tests, papered every single year).

The stress-tester computes your net annual carry, the break-even borrow rate where the carousel stops paying, and the with/without-IFA comparison on identical assumptions — then applies the book’s stress scenario: dividend scale −1%, borrow rates +2%. If the pitch you received can’t survive this page, it can’t survive reality.

★ KEY POINT

The deductibility of loan interest rides on 20(1)(c): borrowed money used to earn business or property income, documented annually. Lose the paperwork, lose the deduction, and the break-even collapses.

⚠ WARNING

IFAs are sold hard on tax deductions and “free insurance.” Demand the with/without comparison on identical assumptions — the book’s exact instruction — and reject any illustration that won’t show the stress case.

Your numbers

Annual premium

Years10

Advance rate (borrowable % of CSV)90%

Borrow rate7.00%

Redeployment return (pre-tax, active)10%

Interest qualifies as deductible — 20(1)(c)

Borrowed funds must earn business/property income, documented every year.

Cumulative net carry over 10 years

$131,868stressed: $39,072

Borrowing back 90% of each $100,000 premium and redeploying at 10% produces a net after-tax carry of $23,976 in year 10 (cumulative $131,868) — on top of the policy the corporation now owns. The arrangement works while your redeployment return clears the break-even borrow rate of 10%. Stress it — rates +2%, advance −10 points — and the cumulative carry becomes $39,072. Demand exactly this with/without comparison, on identical assumptions, from any IFA pitch. Premiums stay non-deductible either way; only the loan interest may qualify under paragraph 20(1)(c), and only with the paperwork filed every year.

Break-even borrow rate: 10%. Above it, the carry is negative and the IFA is a bet on the policy alone. The book’s rule: this is debt, not magic — demand the with/without comparison on identical assumptions from any pitch, and stress it before signing.

Metric	Base case	Stress (+2% rate, −10pt advance)
Borrow rate	7%	9%
Capital redeployed	$900,000	$800,000
Cumulative net carry	$131,868	$39,072
Break-even borrow rate	10%	—

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 CPA

Will our documentation support 20(1)(c) deductibility every year — and who owns that file?

Ask your Insurance

What advance rate does the lender guarantee, and what happens to it if the dividend scale drops 1%?

Ask your Advisor

What does redeployed capital actually earn in my business — is it really above the break-even borrow rate?

Continue in book order

From Chapter 8COLI vs Taxable Portfolio From Chapter 11IRP True-Net-Cost Comparator From Chapter 5Corporate Investment-Income 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.