NEW INCOME TAX RULES FOR LIFE INSURANCE IN 2017

Article  |  January 2016  |  by Marty McConnell


Overview of new rules for life insurance in 2017:

  • As a result of new tax rules that take effect Jan. 1, 2017, plan designs for life insurance policies will change. This will include upward pressure on pricing for Universal Life policies. The new legislation will particularly impact business owners and wealthy Canadians looking to pre-fund their estate’s tax bill using lower-cost life insurance dollars.
     
  •  The calculation of the Capital Dividend Account (CDA) will be negatively affected. Under the new rules, it will take much longer – up to 18 years – for the Adjusted Cost Basis (ACB) of life insurance policies to reach zero. As a result, the amount of tax-free capital available for distribution of insurance proceeds received by a corporation to the estate of the business owner will be reduced. 

 

  •  Increasing tax rates make corporate-owned insurance even more cost-efficient for business owners. Life insurance is often overlooked as a tax-effective strategy. A policy owned in an investment holding company allows business owners to transfer funds into a tax-exempt managed portfolio that ultimately provides a death benefit received tax-free by the company. 

 

The bottom line: Individuals looking to implement corporate-owned life insurance policies should consider doing so before the new Income Tax Act provisions come into effect on January 1, 2017.

 

This article from CPA Magazine has further details and analysis

 

Marty McConnell is a CMG co-founder and partner.  He's also an active board member of the Conference for Advanced Life Underwriting (CALU).