As wealth accumulates within a CCPC, Immediate Funding Arrangements provide a game-changing solution for accessing large sums of cash in corporate accounts without incurring significant tax liabilities.
The origin of the saying is unknown, but I am sure when gold coins were going out style and tendered currency was becoming the rage some aristocrat’s accountant must have said “Me lord, cash is king!” From that day on there have been countless songs, movies, wars, divorces, empires crumbling, empires rising, family feuds, murders, and misunderstandings with money being the central focal point.
Fast forward to today, where the need for funds is as pressing as ever. As wealth accumulates within a CCPC (Canadian Controlled Private Corporation), the question shifts to… how do I access my large sums of cash sitting in my corporate checking account without getting slammed by the large sums of tax? Enters Immediate Funding Arrangement a game-changing product offered by Canadian insurance providers in collaboration with Canadian chartered banks. Before delving deeper into this product please note the following…
- IFA is not for everyone.
- Work with an insurance professional who is experienced with this product
- Consult with your accountant to fully grasp the benefits and risks of an IFA.
- Consult with your accountant to understand the tax implications prior to purchasing any financial product.
So, what exactly is Immediate Funding Arrangement? IFA is a dynamic and unique solution with multiple moving parts. It is crucial to understand each component of the product in order to avoid buyer remorse. The client will purchase a life insurance policy with a term of 10 to 15 years. The corporation will hold the insurance policy. Annual premiums will be minimum of $50,000 a year. A Canadian chartered bank will partner with the insurance company and provide a loan by using the insurance policy as collateral. A loan in Canada is not taxable income. The loan can be used for any purpose the individual or corporation desires.
Every rose has its thorns. Two primary risks one faces is that in the event the client falls on tough times and defaults on payment(s) the insurance policy becomes nil and void. This triggers immediate repayment of the loan and accrued interest provided by the bank. It is very important to ensure the insurance policy contract has a grace clause or skip a payment clause. The second risk is the fluctuation of interest rates. An individual who purchased an IFA policy in 2020 under the assumption interest rates will fluctuate between 2-3% is experiencing a long-term financial loss due to interest rates doubling or tripling since 2022 and onwards.
Fear not the benefits shine bright! The advantages one experiences from this product is the annual insurance premiums paid through the corporation depletes the excess cash. You leave a legacy for loved ones and other charities you support. The loan taken from the bank is repaid from the insurance payout and not from your after tax dollars or corporate profits. The loan you receive is not subject to income tax and can be used as you desire.
Immediate Funding Arrangement is a very interesting product, a product I enjoy discussing and strategizing with clients. If you would like to know more reach out because it all starts with a simple conversation…
