Life Insurance Tax Changes in 2017

There is limited time left until many insurance rules change in Canada. New rules begin January 1, 2017, which will impact the taxation of Canadian life insurance policies. If you’re considering changing your existing insurance policies or buying permanent insurance, you may want to review your overall estate planning and insurance needs before the new regulations are in place.

Beginning January 1, 2017

  • Maximum Tax Accumulation Reserve (MTAR) will be lower
  • The Capital dividend account will not be as good with the next testing
  • Anything that increases death benefit destroys grandfathering (quasi anti avoidance wording)
  • Quick pay insurance will likely need 6 or 7 annual premiums rather than 3 to 5 years
  • There will be lower optional deposit room after 10 – 12 years
  • Less effective MTAR hugging – more insurance would be needed to get the same tax sheltering of deposits
  • New Mortality Table will bring a smaller Net Cost of Pure Insurance. Good for policy loans and withdrawals
  • Bad however for Capital Dividend Account credits on corporate-owned insurance
  • This negative Capital Dividend Account impact affects TERM life insurance policies not just Universal Life Insurance Policies
  • There will be smaller deductions for Immediate Financing Arrangement’s and business loans
  • They will be shutting down excess account value payment on the first death on joint last policies

If you have any questions or would like to discuss this further, please call us today 1-800-300-3056.

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