Life Insurance Tax Changes 2017

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Life Insurance Tax Changes 2017
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• 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?

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• 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.

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• 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.

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• 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
  developed.

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• 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.

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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.

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• 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
  privileges.

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• 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
  2017.

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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.

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• For more information, visit us

http//iassure.ca/en/life-insurance-home/