The basic income tax rules governing life insurance policies purchased on or after January 1, 2017, are changing effective January 1, 2017, which new rules may:
- Cause a smaller investment fund build up in certain policies;
- Reduce the tax-free Capital Dividend Account created on the eventual receipt of the death benefit by corporate owners of the policies.
The new income tax rules will also affect various attributes of the investment components of existing policies including a reduction to the amount of income that can be accumulated in post-2016 universal life policies versus pre-2017 universal life policies.
Life insurance advisors have indicated that if you are contemplating the purchase of life insurance policies, whether for personal protection or corporately-owned policies to fund share purchase obligations in shareholder agreements, you should take steps right away so that, to be safe, the life insurance policies are in place by December 31, 2016. Apparently, life insurance companies will likely not be able to guarantee the placement of policies if the process commences after October 2016.
Canada Revenue Agency (“CRA”) indicated that pursuant to guidelines to be published, if certain essential steps are taken toward the purchase of a life insurance policy before December 31, 2016, even though the policy has not been issued prior to December 31, 2016, then such policies may still be accepted as pre-2017 policies. CRA has not yet published these guidelines. If you are contemplating the purchase of a life insurance policy or a change to an existing life insurance policy, please contact your life insurance agent before the end of October 2016.
If you are contemplating the purchase of a life insurance policy or a change to an existing life insurance policy, please contact your life insurance agent before the end of October 2016.