09/28/2026
Your corporate life insurance policy may have a second job you didn't know about: affecting whether your business qualifies for the LCGE. And the LCGE is all or nothing. Either your shares qualify and in 2026, $1.275M of gain may be sheltered, or they don't and none of it is.
If your corporation is thriving, there is a likelihood that you already have a corporate-owned life insurance or someone has recommended one to you.
But did you know?
Many incorporated owners never hear that their corporate-owned life insurance may also be putting that tax exemption at risk until a buyer's accountant points it out.
Here’s how this works:
When you sell your shares, the Lifetime Capital Gains Exemption (LCGE) can shelter a significant part of the gain from tax. But your company has to qualify as a Qualified Small Business Corporation (QSBC).
That means it must be mostly an active business. Generally, about 90% of its assets need to be active at the time of sale, and more than 50% throughout the prior 24 months.
Essentially, your corporation must not be loaded with passive assets.
Now, here's what often gets missed. The cash value inside some permanent life insurance policies held by a corporation may count as a passive asset.
So the policy you bought for protection could work against you at sale time, especially if it sits next to other investments in the same company.
This doesn't mean corporate life insurance is a bad idea. Infact, for many owners, it's a smart and strategic tool in the right circumstance. It just means the structure matters:
✴️ Who owns the policy: the operating company, a holding company, or you personally
✴️ What type of policy it is
✴️ How much passive money is already sitting in the company
The best time to check is years before a sale, not during due diligence.
That's what I mean by Built to Hold: a structure that still works when life, and a buyer, shows up.
This is especially important if your retirement plan includes the sale of your business or infact, you have other reasons you might want to sell your corporation in the future.
Ask yourself:
"If I sold my company next year, would it pass the QSBC test?"
If you're not sure, that's worth a conversation, not a scare.
This is an educational content only. Not tax, legal, or financial advice. Every situation is different, so speak with a qualified professional before making decisions.
I'm Olumuyiwa Adejuwon, your Wealth Risk Management Advisor.
Retired at 41.
With access to a multidisciplinary team of qualified professionals with 40+ years of combined experience in wealth planning, I help Canadian incorporated professionals and business owners stress-test their wealth and protect what they've built.