Who this is for
Business owners, incorporated professionals and anyone with a corporation. This is for those who have been shown an arrangement built around an insurance policy. It promises tax-free withdrawals, tax-free growth or large deductions. Ordinary life insurance, including corporate-owned policies, is legitimate. This guide is about telling the two apart.
What the CRA described in December 2025
The CRA’s tax tip identifies arrangements involving critical illness insurance, often from an offshore insurer. The shareholder borrows from a third-party lender under a limited-recourse loan. The corporation buys the policy and records the loan as a liability. Money moves in a circle so that the shareholder ends up with cash that is presented as tax-free. The CRA’s view is that these appear to be insurance transactions but are designed to let shareholders take money out of the company without tax. Earlier warnings covered offshore leveraged insured annuities, and 2013 legislation shut down the “10/8” and leveraged insured annuity arrangements.
The six questions
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Where in the Income Tax Act does the saving come from? A real strategy can point to the section. The capital dividend account rules, for example, are in section 89. “It is tax-free because it is insurance” is not an answer. Only the death benefit paid to a beneficiary is generally tax-free. Cash value is taxable on withdrawal above cost.
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Is there a loan, and what can the lender collect from? A limited-recourse loan, where the lender can only recover from the policy itself, is a feature the CRA names specifically. Ask why a lender would make that loan unless the loan is part of the scheme.
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Does the money go in a circle? Suppose funds move from a lender to you, to the corporation, to an insurer, and back to you. The CRA calls that a circular flow of funds, even if each step is labelled differently. Draw the arrows on paper.
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Who is the insurer, and who regulates it? An offshore insurer not regulated in Canada is another named feature. In BC, a person selling life insurance must be licensed by the Insurance Council of BC. You can check any licensee in its public directory.
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Who is paid, and how much? Ask for the commission and fees in writing. A large upfront commission on a single premium policy funded by a loan explains a lot about why the arrangement is being promoted.
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Will they sign the tax analysis? Ask the promoter to provide a written tax opinion under their own name, and ask whether they have asked the CRA for an advance ruling. If the answer is that no one puts it in writing, you have your answer.
If you already signed
The CRA’s warning points to the Voluntary Disclosures Program for people who want to correct their affairs before the CRA contacts them. Relief is better before the CRA writes to you than after. Our voluntary disclosure guide explains the two streams.
How the pieces connect
Corporate-owned life insurance has a legitimate tax rule, the capital dividend account, which is exactly what these schemes imitate. The difference is that the real rule works at death, on net proceeds, through a filed election. Anything promising the same result while you are alive, through loans and offshore policies, is the thing the CRA is warning about.
One thing many people do not realize
The CRA has said what it will do to participants, not just promoters. Its December 2025 warning says it will reassess participants to deny the tax benefits. It may apply penalties to promoters and advisors. It also says participants can face penalties, court fines and in serious cases jail. Being told ‘everyone is doing it’ or ‘it has never been challenged’ is not protection.
What to prepare
- The full proposal, including loan documents and the insurer’s name and jurisdiction
- The commission and fee disclosure
- Any written tax opinion provided
- Your corporation’s recent financial statements
When professional help may make sense
Before signing, always. After signing, as soon as possible, because the Voluntary Disclosures Program is only available before the CRA contacts you about it.
How Rex Tax may be able to help
We review the tax claims against the Act and the CRA’s published positions, and we tell you in writing what we think. We are paid for the review, not for the product. Parminder Singh Oberoi can explain what ordinary life insurance, personal or corporate-owned, does and does not do, through Punjab Insurance Agency Inc.
Official sources
- Canada Revenue Agency tax tip, December 4, 2025: Aggressive tax schemes involving insurance products
- Canada Revenue Agency tax tip, 2020: Offshore leveraged insured annuity schemes
- Insurance Council of BC: Licensee directory
This guide is general information, not advice about your situation. It reflects the rules for the 2026 tax year. It has not yet been reviewed by a practitioner. The information was checked against the official sources listed above on the date shown. Rules change. Check the official sources above or ask us. How we prepare these guides.