Shareholder Benefit · 7 min read
Avoiding s. 15(1): Who Owns, Who Pays, Who Benefits
Corporate-paid premiums on personally-beneficial policies trigger a non-deductible taxable benefit. The Harding v. Harding lesson for Ontario owner-managers.
The three-question test
Every corporate-owned policy should pass a one-minute test: (1) Who owns the policy? (2) Who pays the premium? (3) Who is the beneficiary? When the corporation pays the premium and the personal beneficiary is the shareholder or their family, s. 15(1) treats the premium as a non-deductible taxable shareholder benefit. The corporation gets no deduction and the shareholder takes the full premium into income.
What clean ownership looks like
For corporate purposes (key person, buy-sell, COLI): the corporation owns the policy, the corporation pays the premiums, and the corporation is the beneficiary. The death benefit credits the corporate CDA and flows to the estate as a tax-free capital dividend. No s. 15(1) exposure.
What broken ownership looks like
The corporation pays the premium on a policy owned personally by the shareholder, or on a corporate-owned policy where the beneficiary is the shareholder's spouse or children. Both trigger s. 15(1). Both are common audit findings. Both are usually the result of a policy bought before incorporation and never restructured.
The Harding lesson
Canadian case law (Harding v. Harding and the cases that followed) is consistent: when the personal benefit of a corporate-paid premium is identifiable, CRA will assess. The defense is structural, not argumentative — own the policy at the right level, pay the premium from the right entity, name the right beneficiary, and document the business purpose.
Fixing a broken structure
Restructuring is possible but not free. Transferring an existing policy between a shareholder and a corporation is a disposition at fair market value under s. 148(7). The original owner may realize a policy gain; the receiving corporation acquires a new ACB. The transfer is worth doing — but it should be modeled before it happens, not discovered after the audit.
This article is general commentary, not legal, tax, or insurance advice. Every situation depends on the specific corporate structure, shareholder agreements, and policy contracts in place. For a confidential review of how these ideas apply to your corporation, request a briefing below.
