Sovereign Haus
The Sovereign Glossary.
Every term we use, defined in plain English. No jargon left unexplained — that's the whole point.
- Buy-Sell Agreement
- A legal agreement between business partners, often funded by life insurance, that spells out what happens to each owner's share if one of them dies, becomes disabled, or leaves the business.
- Capital Dividend Account (CDA)
- A notional corporate account that lets certain tax-free amounts — like the tax-free portion of a life insurance payout — flow out to shareholders without personal tax. It's what makes corporate life insurance a genuine estate-planning tool, not just protection.
- Cash Damming (Cash Dam)
- A strategy where a landlord pays rental property expenses from a line of credit instead of cash, freeing up rental income to cover personal spending — making the line of credit's interest tax-deductible.
- Corporate Whole Life Insurance
- A permanent life insurance policy owned by a corporation instead of an individual, used to grow retained earnings in a tax-advantaged way while still providing coverage.
- Estate Freeze
- A structure that locks in the current value of a business or asset for tax purposes today, so that all future growth is transferred to the next generation at a lower tax cost.
- Family Office
- A dedicated structure — a private team or a shared firm — that coordinates a family's investments, tax, estate planning, and insurance under one roof instead of managing each relationship separately.
- Gaps, Leaks & Opportunities
- Sovereign Haus's framework for a financial audit: Gaps are what's missing from your structure, Leaks are where money is quietly being lost, and Opportunities are the specific moves available to fix both.
- HELOC (Home Equity Line of Credit)
- A line of credit secured against the equity in your home. It's the mechanism that makes the Smith Manoeuvre and cash damming possible — but only if it's attached to a readvanceable mortgage.
- Holdco / Opco (Holding Company / Operating Company)
- A two-company structure where an operating company runs the business day-to-day and a holding company owns it, often used to protect retained earnings and plan for tax-efficient succession.
- Infinite Banking Concept (IBC)
- A strategy that uses the cash value inside a properly structured whole life insurance policy as a personal source of financing — letting you borrow against your own policy instead of a bank.
- Key Person Insurance
- Life or disability insurance a business takes out on a critical owner or employee, protecting the company financially if that person can no longer work.
- Passive Income Tax (SBD Grind)
- When a corporation earns too much passive investment income, it can start losing access to the Small Business Deduction — one of the reasons idle retained earnings quietly cost more than they appear to.
- Policy Loan
- A loan taken against the cash value of a life insurance policy, using the policy itself as collateral. Central to how Infinite Banking works.
- PREC (Personal Real Estate Corporation)
- A corporation that licensed Canadian realtors can use to hold their commission income, opening the door to the same corporate tax planning available to other incorporated professionals.
- Readvanceable Mortgage
- A mortgage combined with a HELOC whose limit automatically grows as you pay down principal — the specific mortgage feature that makes the Smith Manoeuvre and cash damming possible.
- Retained Earnings
- Profit a corporation keeps after paying its expenses and taxes, instead of paying it out to shareholders. Left sitting as cash, it's taxed as passive income — one of the core problems Sovereign Haus's Corporation pillar addresses.
- Small Business Deduction (SBD)
- A reduced federal tax rate available to Canadian-controlled private corporations on their first tranche of active business income — access to it can shrink as passive investment income grows.
- Smith Manoeuvre (also spelled Smith Maneuver)
- A legal Canadian strategy that converts non-deductible mortgage interest into tax-deductible investment-loan interest, by re-borrowing the principal portion of every mortgage payment and investing it.
- Traceability Rule (Section 20(1)(c))
- The Income Tax Act rule that makes the Smith Manoeuvre and cash damming legal: interest is deductible based on what the borrowed money was used for, not just the fact that it was borrowed.