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Posts from the ‘FSB Content’ Category

Are Life Insurance Premiums Ever Tax Deductible?

Considering that the proceeds of a life insurance policy are received tax free upon the death of the life insured, it is not surprising that the premiums of the policy are not tax deductible.  There are two circumstances, however, where premiums would be deductible for income tax purposes:

  1. If the life insurance policy is assigned to a lending institution that requires the assignment as a condition for a loan, for either investment or business purposes.
  2. If the life insurance policy is donated to a registered charity and the donor continues to pay the premiums on behalf of the charity.

Life insurance policies used as collateral security for a loan

The conditions under which the owner of a life insurance policy would be entitled to a collateral insurance deduction are as follows:

  • The loan advance must be made by a qualified financial institution that is in the business of lending money. This includes banks, finance companies, trust companies, credit unions or insurance companies.  It does not include private lending arrangements such as with friends or family members;
  • The lending institution must require the assignment of the policy owned by the borrower as a condition for granting the loan and a formal assignment of the policy must be made. There should be a letter or other documentation on file to substantiate the lender’s requirement for the life insurance assignment;
  • The proceeds of the loan must be used for investment or business purposes the income of which would be taxable to the borrower;
  • The life insurance policy assigned can be either an existing policy or one taken out for this specific purpose.

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Private Corporations in the Cross Hairs

If you are the owner of a private corporation you should be concerned about the commentary that is coming from the Department of Finance.  In the Federal Budget of March 2017, Finance expressed their concern that private corporations were being used by high income Canadians to obtain tax advantages that were not available to other Canadian tax payers.  That concern has led to the release on July 18th 2017, of a consultation paper along with draft legislation.  Finance is currently asking for input from interested parties and stakeholders and has stated that the consultation period will end on October 2, 2017.  At this point, whatever happens after that date is anyone’s guess, but speculation is high that changes will be introduced to close what the Department perceives as abusive practices relating to private corporations.

Specifically, there are three specific tax planning strategies employed by private corporations that the department is most concerned with:

Sprinkling income using a private corporation

Income tax paid on income from a private corporation can be greatly reduced by causing that income to be received in the form of dividends by individuals who would pay tax at a much lower rate or not at all.  These dividends are usually paid to adult children or other family members who are shareholders of the private corporation or to a family trust.  By “sprinkling” the income in this manner the amount of income tax paid can be greatly reduced. Read more

Insurance Audit for the Business Owner

Many business owners understand the important role that life insurance plays in effective corporate planning.  Whether it is the funding of a shareholders’ agreement, life insuring corporate debt, or protecting against loss from the death of a key employee, life insurance is of great value in underpinning the financial success of a corporation.

Just as life insurance needs for families change over time the same is also true for requirements of a business.  If it has been some time since you last reviewed your corporate needs then it is probably time for a corporate insurance audit. This is especially true if the company has grown in value since the time the insurance was first implemented.  The scope of the audit and the insurance related issues include the following: Read more

The Genetic Non-Discrimination Act and its Impact on Life Insurance

One of the many advancements in medicine has been the use of genetic testing in determining the probability that an individual will develop a life- threatening illness or condition.   Knowing that you or your children are not at risk of a major illness can be of great comfort while knowledge to the contrary can be of great value in preventative treatment and planning.  There was a growing concern, however, that individuals would be very reluctant to undergo genetic testing if knowing the results could affect their ability to properly insure themselves or impact their opportunities for employment.  As a result, a private member’s bill, Bill S-201, was introduced in the senate resulting in the Genetic Non-Discrimination Act being recently enacted into law.

What does the Act do?

It is now illegal for employers, insurance companies, or any other entity or individual to require anyone to undergo genetic testing or to disclose the results of a genetic test before entering into a contract which provides goods or services.  Now, if you apply for life, disability or critical illness insurance living benefit coverage, you cannot be denied coverage due to the results of a genetic test.  Insurance companies and their agents are also prohibited from “collecting, using or disclosing” the results of a genetic test without an individual’s written consent. Penalties for not complying with the new law are severe. Read more