Funding Capital Gains Tax with Life Insurance?

Take advantage of current and favourable CRA rules to fund capital gains tax liabilities.

It has been a long time since major changes were made to life insurance legislation in Canada that negatively impact your ability to fund capital gains tax. That’s all about to change with the introduction of new exempt test rules for life insurance policies. The new legislation reflects current mortality rates, new insurance product design, and heightened requirements for standardization across insurers and products. The new rules replace the current and more favourable rules which remain in place until the end of 2016. For a summary of the upcoming tax changes read more here.

Steve and Sally’s Story of Funding Capital Gains Tax

Steve and Sally operate a successful business. For many years they have benefited from the use of a holding company to retain surplus earnings. Through the advice of their accountant, they will be restructuring their affairs to include a family trust and a freeze of their share value. With their retirement cash flow planning set, they are focused on estate planning and the capital gains tax that will be payable on the disposition of their shares upon death. They don’t want their children and grandchildren to have to sell assets or borrow money to pay the tax liability.

Life insurance is an ideal choice for Steve and Sally. Among the many design plan options, a guaranteed level lifetime premium policy is the plan for them. With this plan structure, the premium deposits are minimized and spread out through their lifetime; thereby leaving their capital for investment or spending and maximizing the result for their heirs and beneficiaries.

This is a familiar story, but you need to plan now to maximize your ability to fund a capital gains tax liability. As of January 1, 2017 this plan type may not be available and the premiums will be significantly increased.

Contact Dehoney Financial GroupBy reviewing current life insurance needs and in-force policies, our business insurance specialists can help establish the best protection for wealth and cash flow against the impact of  these new tax rules.