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The Canadian business owners test

Your corporation has $1,000,000. What happens next?

Follow the same capital through four destinations, on the same schedule, and watch what each one gives up along the way. Every number below comes from a labelled illustrative assumption set you can open at any time.

Illustrative Canadian assumptions. Not your tax rates, and not a carrier illustration.

Province or territory

Updates the 2026 tax rates used throughout this example.

Capital being modelled

$1,000,000

Deployment schedule

$200,000 a year for 5 years

Horizon

20 years

Every destination receives exactly the same amount, in the same years, for the same number of years, so the comparison stays honest. After the funding period the capital is left to develop for the rest of the horizon.

Timeline

Year 20

Values update as you move through the modelled period.

Scoreboard

Four destinations at year 20

For insurance, estate value and CDA are death outcomes. They are not amounts you can spend in that year.

Cash

Cash / retained corporate cash

Estimated amount reaching family

$688,000

Total capital contributed
$1,000,000
Projected value at year 20
$1,196,000
Estimated taxes paid over the modelled period
$705,000
Estate or death value
$1,196,000
Estimated potential CDA credit
$0
Liquidity and access
High
Passive-income implication
Taxed annually
Show the math

Every figure is shown at the end of the year (EOY). Money is deposited at the start of the year, so each row already includes a full year of growth, the same way a whole life illustration reads.

Interest rate on corporate cash

Interest is taxed inside the corporation every year as investment income, and part of that tax is refunded only when the money is paid out. Passive investment income above $50,000 a year can also start to reduce access to the small business deduction.

Year (EOY)AddedGrowthTaxBalance
1$200K$4K$2K$202K
2$200K$8K$4K$406K
3$200K$12K$6K$612K
4$200K$16K$8K$820K
5$200K$20K$10K$1.03M
6$21K$10K$1.04M
7$21K$10K$1.05M
8$21K$11K$1.06M
9$21K$11K$1.07M
10$21K$11K$1.08M
11$22K$11K$1.09M
12$22K$11K$1.10M
13$22K$11K$1.12M
14$22K$11K$1.13M
15$23K$11K$1.14M
16$23K$11K$1.15M
17$23K$12K$1.16M
18$23K$12K$1.17M
19$23K$12K$1.18M
20$24K$12K$1.20M

Moving it to the family at the end of year 20

  • Corporate balance$1,196,000
  • Refundable corporate tax recovered (RDTOH)$120,000
  • Personal tax on the taxable dividend-$628,000
  • Reaches the family$688,000

Corporate investments

Taxable corporate investments

Highest modelled family outcome in this example

Estimated amount reaching family

$1,627,000

Total capital contributed
$1,000,000
Projected value at year 20
$2,225,000
Estimated taxes paid over the modelled period
$1,007,000
Estate or death value
$2,225,000
Estimated potential CDA credit
$545,000
Liquidity and access
Moderate
Passive-income implication
Taxed annually
Show the math

Every figure is shown at the end of the year (EOY). Money is deposited at the start of the year, so each row already includes a full year of growth, the same way a whole life illustration reads.

Year (EOY)AddedGrowthTaxBalance
1$200K$12K$2K$210K
2$200K$25K$4K$430K
3$200K$38K$7K$661K
4$200K$52K$10K$903K
5$200K$66K$13K$1.16M
6$69K$15K$1.21M
7$73K$17K$1.27M
8$76K$18K$1.32M
9$79K$20K$1.38M
10$83K$21K$1.45M
11$87K$22K$1.51M
12$91K$24K$1.58M
13$95K$25K$1.65M
14$99K$26K$1.72M
15$103K$27K$1.79M
16$108K$29K$1.87M
17$112K$30K$1.96M
18$117K$32K$2.04M
19$122K$33K$2.13M
20$128K$34K$2.22M

Moving it to the family at the end of year 20

  • Corporate balance$2,225,000
  • Corporate tax on selling remaining gains-$73,000
  • Paid out tax free through the capital dividend account$545,000
  • Refundable corporate tax recovered (RDTOH)$376,000
  • Personal tax on the taxable dividend-$901,000
  • Reaches the family$1,627,000

Personal extraction

Personal extraction

Estimated amount reaching family

$1,109,000

Total capital contributed
$1,000,000
Projected value at year 20
$1,149,000
Estimated taxes paid over the modelled period
$740,000
Estate or death value
$1,149,000
Estimated potential CDA credit
Not applicable
Liquidity and access
High
Passive-income implication
Personal
Show the math

Every figure is shown at the end of the year (EOY). Money is deposited at the start of the year, so each row already includes a full year of growth, the same way a whole life illustration reads.

This assumes the owner is already paying themselves roughly $150,000 a year from the business, so every extra dollar taken out is taxed at the top dividend rate for the province chosen. What is left after that tax leaves the corporation and is invested personally in the same 6% example portfolio (2% dividends, 4% growth), taxed personally each year, with remaining gains taxed at death.

Year (EOY)Taken outTax to extractInvested personallyGrowthPersonal taxPersonal balance
1$200K$95K$105K$6K$1K$110K
2$200K$95K$105K$13K$2K$225K
3$200K$95K$105K$20K$4K$345K
4$200K$95K$105K$27K$5K$471K
5$200K$95K$105K$35K$7K$603K
6$36K$8K$631K
7$38K$9K$660K
8$40K$10K$689K
9$41K$11K$720K
10$43K$11K$752K
11$45K$12K$785K
12$47K$13K$819K
13$49K$14K$855K
14$51K$14K$892K
15$54K$15K$930K
16$56K$16K$970K
17$58K$16K$1.01M
18$61K$17K$1.06M
19$63K$18K$1.10M
20$66K$19K$1.15M

The gold columns are money that has already left the corporation and is now owned personally.

Moving it to the family at the end of year 20

  • Personal balance$1,149,000
  • Tax on remaining gains at death-$40,000
  • Reaches the family$1,109,000

Corporate participating whole life

Bringing in the whole life values

We are requesting illustration derived values rather than estimating them here.

Capital leakage

Watch where the capital goes by year 20

Reaching your familyEstimated taxes paid over the modelled period
Cash$688,000 to family, $705,000 estimated tax
51%
Corporate investments$1,627,000 to family, $1,007,000 estimated tax
38%
Personal extraction$1,109,000 to family, $740,000 estimated tax
40%

The red portion is capital no longer available to your business or your family in this example. It combines estimated tax on annual growth with the example tax assumed when corporate capital finally moves to the family. Illustrative only.

Cash / retained corporate cash

Capital left in the operating or holding company bank account, fully available and fully idle.

  • Highest day-to-day access of any destination.
  • Interest earned inside the corporation is investment income and is taxed annually.
  • Purchasing power erodes with inflation over long horizons.
  • Still forms part of the corporation at death, so extraction planning still applies.

Taxable corporate investments

Corporately held securities, GICs, funds or rental assets accumulating inside the company.

  • Investment income is taxed annually at corporate rates, with refundable mechanics on some income types.
  • Meaningful adjusted aggregate investment income can affect access to the federal small-business limit.
  • Liquidity depends on the underlying asset and market conditions.
  • Value forms part of the share value at death; extraction and estate planning still required.

Personal extraction

Paying surplus out as salary or dividends and investing or spending it personally.

  • Extraction triggers personal tax in the year it is taken.
  • Less capital remains available to the corporation for opportunities.
  • Personal investment income is taxed personally each year.
  • Simplifies the corporate estate but reduces corporate flexibility.

Corporate-owned participating whole life

An appropriately designed exempt policy owned and funded by the corporation, for long-term surplus capital only.

  • While a policy qualifies as exempt, the policyholder generally is not subject to annual taxation on the investment income accumulating inside the policy in the same way as ordinary taxable investment income.
  • Guaranteed values and non-guaranteed values must be viewed separately; policyholder dividends are not guaranteed.
  • Access to liquidity may be available through policy loans or third-party collateral borrowing, with interest, terms, lender requirements and possible tax consequences.
  • At death, proceeds received by the corporation may create a capital dividend account credit based on statutory calculations, including adjusted cost basis.
  • Underwriting applies; suitability depends on cash flow, time horizon and objectives.
How the whole life column is producedOpen this for the funding structure, offset wording, the term rider event and the capital dividend account treatment.Open
  • The source illustrations are Life Pay to age 100 designs. The contractual base premium remains due to age 100.
  • Offset does not mean the premium disappears. It means the base premium is still contractually due to age 100 and is illustrated as being paid by dividends under the primary current dividend scale, which is not guaranteed.
  • Offset is shown as a comparison option, not a recommendation. Continuing to fund is often strategically preferable where it suits your cash flow.
  • The term rider is intentionally removed at the end of its term. That step down in total death benefit is a deliberate design event, shown exactly as illustrated and never smoothed. The whole life component carries on.
  • Pay 10 and Pay 20 whole life designs are never estimated from these figures. A carrier illustration is required for those.
  • Fund for 10 years means continuing to pay in out of pocket until 10 years after the policy starts. It is not a contractual Pay 10 policy.
  • Potential access is shown as up to 90% of cash value. Borrowing against a policy depends on a lender or the carrier, their terms and interest, and is not guaranteed.
  • Values use the carrier primary current dividend scale. Dividends are not guaranteed.
  • In a Canadian corporation, the capital dividend account credit is estimated as the death benefit less the policy adjusted cost basis. It is not automatically the entire death benefit, and paying a capital dividend requires sufficient balance and a valid election.
  • These are educational, illustration derived estimates. They do not replace a carrier approved illustration.

Refreshing the illustration values.

Does this example assume I already have $1 million?Open

No. This example assumes the corporation has $200,000 of surplus cash flow available each year for five years. The same $200,000 annual amount is directed to each destination on the same schedule, reaching $1 million of total contributions. It does not assume $1 million is available on day one.

If a corporation already had $1 million available, the comparison would be structured differently. A participating whole-life policy generally could not receive the entire amount immediately under this design. The planned policy funding could remain $200,000 annually while the undeployed balance is temporarily held in an appropriate interest-bearing account and drawn down over the funding period. That would be a different model and would require its own assumptions.

See my scorecard

Want the real numbers built around your corporation?

This example uses educational assumptions. An actual comparison requires your age, health, corporation, funding level and real carrier illustrations. If there is nothing worth changing, we will tell you. If there is, we will build the numbers.

Prefer to keep learning first? The 4-part business owner mini-course covers the same thinking in more depth.

Educational modelling only. Not tax, legal, accounting or insurance advice. Corporate-owned participating whole life is not appropriate for every business owner or every corporation.