Wealth Strategies: Life insurance tax law changes coming soon
Milestone Wealth Management Ltd. - Jul 21, 2015
Different types of insurance serve different purposes with one of the main features of Universal Life and Whole Life insurance* being able to tax shelter additional monies up to certain maximums governed by tax legislation.
Different types of insurance serve different purposes with one of the main features of Universal Life and Whole Life insurance* being able to tax shelter additional monies up to certain maximums governed by tax legislation. These maximum deposit amounts are based partially on the amount of insurance coverage in conjunction with the governing rules to be within the MTAR (Maximum Tax Actuarial Reserve) amount that insurance companies are required to calculate. Each anniversary date of the policy the new maximum deposit amount is noted on the annual policy statement. Deposits beyond the maximum deposit amount wouldn‘t therefore be tax sheltered.
"The legislation, which reflects the fact that people are living longer and that their insurance policies will pay out later, received royal assent on December 16, 2014 and comes into effect January 1, 2017. Under that legislation, insurance products will fall under one of the following tax generations:
G1- which refers to policies issued or last acquired before December 2, 1982
G2- which refers to policies issued or last acquired after December 1, 1982 and before January 1, 2017
G3- which refers to policies issued after 2016, or policies that have lost their G1 or G2 status due to lack of grandfathering"
The bottom line for these changes is less exempt room for tax sheltering for affluent individuals and corporate business owners whom have likely exhausted other tax sheltered savings vehicles such as traditional RRSP’s, pensions and TFSA accounts.
Annuity insurance* products also offer certain advantages given their tax structure with the main focus being a guaranteed income stream. They too fall into the realm of these insurance changes and will entail an increased amount of the taxable portion of the payments.
Given the above, reviewing affected insurance policies in advance of the implementation date would be a worthwhile exercise to potentially take advantage of additional exempt room and tax savings.
* Offered through Canaccord Genuity Wealth & Estate Planning Services
The preceding information is for general information only and does not constitute tax advice. All investors should consult with a qualified tax accountant. (Disclaimer)