Yesterday's Immediate Financing Arrangement letter pulled more replies than anything we have sent in six weeks. Today is the follow up. Seven real business owner questions, answered plainly. No gloss, no pitch, just the actual answer.
PV, Mit & Jeff
Seven questions from business owners across a very specific slice of our reader base. If your version of the question is here, this is the answer. If it is not, reply and we will answer directly.
If you missed yesterday's letter on the Immediate Financing Arrangement (IFA), the short version: it is a Canadian corporate structure that lets your company own permanent life insurance, borrow against the policy, and invest the borrowed money inside Foundation Capital, and then move seven figures to your family tax free at death through the Capital Dividend Account. Full walkthrough was in yesterday's send and the guide card is halfway down today's letter.
What happened next: the letter generated the highest reply rate we have seen in six weeks. Almost all of the replies were business owners asking the same handful of practical questions. Today's letter is the seven most common ones, answered.
Quick pre-read for anyone landing here fresh: Mit's Sunday universe webinar is still the best one hour on ramp for the full Foundation Capital picture.
FCPRET, all three development funds, and the affordable housing side in one sitting. Best single source of context before the call.
No. Raj was 40 in the illustration because 40 is a common age for a business owner who is far enough into building the company to need real protection but still young enough that permanent insurance premiums are manageable. The structure works across a wide age band. Younger owners get lower premiums but need to fund for longer. Older owners get higher premiums but the death benefit and CDA credit compound faster. The right age for you is the age where the annual policy funding fits your company's cash flow through a bad year. A licensed insurance advisor runs the numbers for your age, health, and cheque size.
Honest answer: the plan's growth engine underperforms and the loan interest still has to be paid. This is the exact scenario the guide warns about. If FCPRET returns come in at, say, 10 percent instead of the 15 percent target for a stretch, the compounding math still works but the surplus over the 5 percent loan interest shrinks. If they come in below the loan interest for years, the plan starts eroding rather than compounding. The insurance layer still protects your family in that scenario, but the growth thesis breaks. This is why the guide is explicit that a weak investment defeats the plan, and why FC has never met an IFA candidate we told to force a weak investment. If our targets do not line up with your risk tolerance, keep the insurance and skip the borrowing.
Two paths. First, at a sale, the policy typically moves with the company or gets restructured as part of the transaction (the buyer might want the key person coverage, or the seller might roll it into a holdco). Second, if you wind down, the policy can be transferred to a holdco or another related corporation, and the loan gets refinanced or paid down from the wind up proceeds. The IFA is not a trap. But every corporate change requires the tax advisor and the lender at the table, so the plan needs to be re-priced anytime the corporate structure shifts. This is why the licensed team assembled at the start is not a one-time cost. They stay in the file.
Generally yes, when the borrowed funds are used for the purpose of earning income and the CRA rules on interest deductibility are satisfied. Since the borrowed money is going into Foundation Capital investments that are structured to produce income and capital gains, the interest is typically deductible against corporate income. But this is exactly the kind of question you do not take our word for. Your accountant will run the specific ITA sections against your corporate facts. There are edge cases (thin capitalization, related party lender, etc.) that can complicate the analysis. Do the diligence, then decide.
Written by Mithulan Perinpanayagam, CPA CA · August 2026
Full Raj illustration, year by year projections, downside walkthrough, and the checklist for whether an IFA fits your situation. Take it to your accountant before your next planning meeting.
Yes, and it is often a stronger fit for a professional corporation than for a regular operating company. Medical, dental, legal, and other professional corps typically have predictable annual retained earnings that make the policy funding easy to plan for. They also tend to have limited investment options inside the corp because of professional regulations, which makes the FCPRET and Foundation Development Fund exposure a genuine diversification benefit rather than a redundancy. Your provincial college of physicians or law society may have specific rules on what a professional corp can invest in, so the licensed team has to verify that the FC investments are permitted inside your corp structure before you commit.
The loan is typically at a floating rate tied to prime, so yes, the interest bill can move up. The illustration in yesterday's letter used 5 percent. If prime moves up by 200 basis points and your loan spread moves in step, your interest bill can rise materially over the life of the plan. The mitigation is not that we predict rates. It is that we structured the plan so the investment side has real margin over the loan cost. FCPRET's 15 percent targeted annualized return absorbs a lot of rate movement before the compounding thesis breaks. The plan should be re-run at 6 percent and 7 percent scenarios before you commit, and your licensed team will build that into the underlying stress tests. If you cannot stomach a plan that runs on floating rate debt, the IFA is not for you and there are simpler corporate insurance structures without the borrowing layer.
This is the piece most people underestimate. The plumbing goes like this. At death, the insurance company pays the death benefit to your corporation. The corporation pays off the loan first (the lender is repaid before anyone else). What is left in the corporation is a big pile of cash. The CDA is not that cash. The CDA is a tax ledger entry that unlocks a tax free dividend equal to the credit amount. The corporation then declares a capital dividend, files the required T2054 CRA election, and pays that dividend to the shareholder. If your family already owns the shares (either directly or through a family trust that names them), the dividend goes to them tax free. If the shares are still in your name at death, the estate has to deal with the deemed disposition on your terminal return first, and then the shares transfer to your family who then receive the capital dividend. This is why the estate lawyer is on the team. Share ownership planning done well ahead of time is what makes the whole structure clean at the end.
Reply to this letter with it. We answer every one, and if it is a common one we will fold it into next week's follow up. The letters generated by real reader questions are always the ones that get forwarded to the next business owner.
If you want to have a longer conversation about the investment side of the structure specifically, book the Fund III call. Foundation Capital does not sell or arrange life insurance and receives no referral compensation on it, but on the investment engine that sits inside the plan we can walk through FCPRET and Fund III mechanics in depth in 30 minutes.
600 Units · Wellington BRT Corridor · Workforce Rent
Targeted: 20% compounded annually (4 year hold)
The 40% growth engine inside Raj's IFA. $100K minimum · Accredited investors, existing FC investors, or FF&BA exemption.
$10K Minimum · RRSP / TFSA / RESP / LIRA Eligible · Also Cash
Targeted: 15% Annualized (7% cash monthly + 8% appreciation)
The 60% income engine inside Raj's IFA. Cash distribution DRIPs directly into more units, compounding the plan.
Talk soon,
PV, Mit & Jeff
P.S. Even if the answer for you is "not right now" or "not ever," most business owners who go through this analysis with their accountant walk away with a clearer picture of what their corporate money is actually doing. Worth the hour.
