2017 life insurance tax changes - time is almost up!
Life insurance is an important planning tool for many Canadians. For some the protection required is temporary in nature– simply replacing income or protecting a mortgage. For others, life insurance proves invaluable in the long-term, allowing people to meet their estate planning and business succession needs.
Permanent life insurance in Canada has the added benefit of a tax-sheltered savings element. This element has been providing Canadians with flexibility in funding their plans, thus becoming an essential wealth accumulation vehicle.
In light of the recent tax increases affecting investment income earned personally and corporately, the value of tax-sheltered investing continues to grow. Further for business owners, life insurance is the only vehicle that can take a taxable asset and convert it into an asset that can ultimately be distributed from a corporation tax-free.
Unfortunately time is running out to take advantage of many of these features.
Why do it now?
In just a few months new tax legislation will come into effect which will limit many of these advantages. The new legislation, set to be implemented on January 1, 2017, will restrict how quickly money can be deposited into an insurance contract and will therefore decrease the size of the tax-shelter.
In addition, the new legislation will directly impact the tax-free portion available for distribution from a corporation.
The good news is that we still have time to take advantage of the generous rules afforded to life insurance. You must act quickly, however.
What tax changes are coming January 1st 2017?
- The exempt test policy or ETP
- The formula for the Adjusted Cost Basis (ACB) of a life insurance policy
- Changes to the policies insuring more than one life
- Revision to to 8% rule and the 250% test
- Updated calculation for the Net cost of Pure Insurance (NCPI)
- The taxation of prescribed annuities
To qualify for the generous pre-2017 rules, a permanent life insurance policy needs to be issued prior to the end of the year. Determining the right solution for your needs takes time. Applying for a new policy takes time. Converting an existing term policy without medicals takes time.
Give yourself the time you need by taking action now.
Contact us today to set up an appointment. We would be happy to review your situation and the impact the 2017 changes will have.
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Also published on Medium.