For a number of years the Income Tax Act has allowed policy holders of certain insurance contracts to realize a number of tax benefits. Many Canadians dislike insurance or simply don’t have a need for the protection component, but nonetheless invest in such contracts due to significant tax advantages currently available to both individual investors and those owning a corporation. While the investment component isn’t available without its insurance counterpart, in many circumstances the insurance cost can be kept small, allowing for more deposits to be assigned to the investment side. The tax benefits could prove substantial and often more than offset the cost of insurance.
As few tax shelters remain in Canada, these strategies have been very popular with middle to high net worth individuals and business owners. Over the last few years there has been a trend to eliminate or reduce tax strategies that Canadians can employ, and investing in these types of insurance contracts is next on the list.
In December of 2014 Bill C-43 was passed; it allowed for an implementation period to the end of this year, with the new rules taking effect on January 1st 2017. The changes include a number of revisions including those for certain definitions and percentage tests. While these vehicles will still have tax advantages beyond the end of this year, the Income Tax Act is grandfathering the current preferred rules for any contract in place prior to January 1st. As insurance approvals can take a few months, our office has seen a tripling in activity over previous years.
These contracts don’t work for everybody but can generally jump start wealth creation for business owners and high income earners. While my kids are still too young to know, I’ve added these vehicles to their lineup as has become increasingly popular with parents and grandparents.
For a detailed report of the tax changes, contact our office or send me a reply.
Have a great weekend!
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Daniel Popescu CFP, CIM, FMA, FCSI
President & CEO
MNP Tower, 3100-1021 West Hastings St.
Vancouver, BC V6E 0C3
T: 604-558-6830/1(877) 588-6822
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