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Life Insurance Tax Changes 2017


The Income Tax Act stipulates that the ‘Exemption test’ is given to tell whether investments earnings resulting from the cash-value accumulation within the given life policy is liable for taxation. – PowerPoint PPT presentation

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Title: Life Insurance Tax Changes 2017

Life Insurance Tax Changes 2017
  • Taxation on life insurance is changing soon
  • The federal government has passed new tax
    legislation to revise and modernize the
    exempttest and related rules that determine how
    life insurance policies are taxed. These
    changestake effect on January 1, 2017. How the
    changes will affect the policyholder?

  • As a holder of a life insurance policy, it would
    be very good for you to start considering
    reviewing your policy due to some changes that
    will be taking place in the near future. Chances
    are very high that you have never come to the
    realization that your annuities or your life
    insurance policy is mostly tax-exempt in the
    event that it is taken to not be savings-oriented
    but instead protection-oriented.

  • The Income Tax Act stipulates that the Exemption
    test is given to tell whether investments
    earnings resulting from the cash-value
    accumulation within the given life policy is
    liable for taxation.

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  • In an insurance policy that is tax exempt, no tax
    is charged on growth of the investments within
    the policy that results within the set policy
    limits. This exemption has allowed for some
    flexibility with these policies as far as the
    investment accumulation, funding duration and
    amount are concerned.

  • Over the past couple of years, the Canadian
    government has been putting a lot of effort in
    the revision of the exemption test owing to the
    fact that the rules it goes by were set in place
    in the year 1982. Since then, increases in life
    expectancies have been witnessed and a larger
    number of insurance products have also been

  • Last year, the most recent proposal to revise the
    exemption test was released by the Department of
    Finance. In the proposal are changes to the
    assumptions that are considered when determining
    which savings component is tax exempt in a number
    of life insurance policies.

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  • This is geared towards limiting the amount of
    cash that individuals are allowed to hold in
    their policies as tax exempt. It further
    lengthens the implementation date for the
    exemption test changes from January 1, 2016 to
    January 1, 2017. Generally, the maximum tax
    exempt room that is offered for a policy today
    will be much lower at the beginning of 2017.

What effect does this have on the Individual?
  • Currently, the proposal that is being made is
    that annuities and life insurance policies that
    have already been issued will be grandfathered
    under the current rules of the exemption test.

  • It should however be noted by policyholders that
    in the event that existing policies are changed
    subject to legislative changes that take place in
    2017, they might end up losing these grandfather

  • This then goes to say that if you are looking to
    make any changes to the policies that you
    currently hold, it would be wise for you to make
    the changes before 2016 comes to a close.

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  • In the event that you need another insurance
    policy and you are looking to take advantage of
    the current tax-exempt room on the basis if the
    proposed grandfather privileges, there are
    chances that you might enjoy tax sheltering
    opportunities that will be available due to the
    funding of a policy that is tax exempt before

What to do before 2017?
  • When looking at your entire financial plan to
    secure both your future and your current needs,
    it would be advisable for you to also review the
    insurance coverage that you have taken. If you
    need to update your policy, it might be
    beneficial to do it before 2016 ends.

  • For more information, visit us

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