Capital gains tax in Canada not only applies to shareholders while living, but
also at their death. Growth of business assets above the adjusted cost base become
taxable at the capital gains rate. Over time these gains can become a significant hidden
tax bill. Life Insurance plans can be designed to provide a solution.
Many privately held corporations in Canada accumulate income, which becomes
trapped in the corporation. If this surplus is invested and gains are obtained they become
taxable at a very high rate.
Shareholders and professionals can use Universal Life or Whole Life Insurance to avoid this
annual taxation and provide liquidity for creditors and tax liabilities through the
insurance proceeds. Cash values can accrue tax-deferred in a wide array of investment
options. Pension augmentation or leveraging strategies can be implemented in the future
to benefit the shareholders or professionals.
Corporate Pension Augmentation - The advantage of tax-sheltered growth within a Universal
or Whole Life plan allows corporations to structure pension augmentation for executives.
By over funding the insurance requirements the cash value will accrue tax-deferred until
retirement, at which time withdrawals can be made or leveraging can be implemented.
Leveraging Strategies - Cash Values from a Universal or Whole Life plan can be assigned to
a bank, which in turn provides a line of credit to use for retirement income.
The advantages to these arrangements are that cash values within the plans continue to
accrue without taxation. As well, individuals can access their line of credit with out
having to pay personal income tax. In corporate arrangements the income is taxable to the
retired shareholder. However in both cases, if structured properly the interest paid on
the line of credit may be tax deductible. Professional Assistance should always be sought
prior to implementing any of these arrangements.
LifeCanada.Com is intended as an information and resource site for Canadians.
Professional Assistance from qualified advisors is strongly recommended prior to
implementation of any plan or concept contained within the site.