Take advantage of current CRA rules to save tax, and maximize wealth and cash flow.
It’s been a long time since major changes were made to life insurance legislation in Canada that negatively impact your ability to save tax. That’s all about to change with the introduction of new exempt test rules for life insurance policies. This new legislation has a negative impact on the tax benefits of certain insurance strategies. Your options? Plan now and take advantage of the current and more favourable Canada Revenue Agency (CRA) rules. Policies issued prior to January 1, 2017 will be grandfathered and will allow you capitalize on all of the advantages of the current legislation as follows:
Diversify Retained Earnings to Maximize Cash Values
- Investment returns inside cash value life insurance are exempt from tax
- CRA doesn’t want insurance policies to be used as investments
- Changes will result in a reduction of allowable policy cash value
- The effect on taxpayers is similar to a reduction in annual RRSP contributions to $5,000
Establish Permanent Life Insurance at Reduced Minimum Premiums
- Term 100 policies have an imbedded cash reserve to fund increasing mortality costs
- Changes to cash reserve taxation rules will increase Term 100 or LCOI rates
- Significant impact on Term 100 and Level Cost Universal Life Policies-it’s possible that these types of policies will no longer be available
Increase Capital Dividend Account (CDA) Credits and Maximize Tax Savings on Tax-Free Capital Dividends
- Mortality tables are being updated to account for longer life expectancies
- The result of this change is an increase to the policy’s adjusted cost base
- A higher adjusted cost base will result in lower capital dividend account credits and higher tax payable on corporate dividends
Increase Tax-Sheltered Investment Accumulation with a Reduced Policy Funding Duration
- Currently, a policy can be funded with a premium duration as low as 1 year (3 – 4 years is more typical)
- The new rules tighten 1982 legislation and will increase the minimum premium duration to 8 years
- Impacts those who wish to fund a policy as quickly as possible
By 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.