INDEX. pro-rating, 11

Transcription

1 INDEX A grandfathered policies, 11, 12, year deemed disposition rule, keyperson insurance strategy and, , 207, 208 Crummey trust and, 325 pro-rating, 11 Accounting for life insurance, reduction by NCPI, 10 11, Adjusted purchase price, 412, 427, Accounting standards, Accrual reporting Advanced death benefit, annuities, Aggressive tax planning, Accrual taxation, 7 8, Annuitant annuities death of, , 435, 436 introduction of, defined, 394, 397 annuity contracts Annuities, see also Annuity contracts, post-1989 contracts, Charitable annuities, Deferred pre-1990 contracts, annuities, Insured annuities, deferred annuities, Segregated funds, Structured settlements contracts last acquired after December 31, 1989, 436 accrual taxation rules, contracts last acquired prior to exempted, 402 April 1, 1977, deemed disposition rules, 453 contracts last acquired after deferred, 431 March 31, 1977 and before January 1, 1990, defined, 394, 397 general, 1, 397 Accumulating fund, 7 11, 82 83, 433 grandfathered, 402 Adjusted cost base, 3, 4, 5, 6, 7, 8, immediate, 409 annuity contracts, 484 income calculation of, requirement to report, 401 examples of, life annuities, 397, 399, 409 defined, 3, 4, 75 77, 418 non-prescribed, 448, 453, 457 formula, prescribed, ,

2 Annuities (cont d) taxation of qualifying as structured settlement, post-1989 contracts 472 accrual taxation of, reporting requirements, 402, 432 dispositions, taxation of segregated fund, 398, adjusted cost basis, taxation of overview, 417 accrual taxation, proceeds of disposition, early, Carter Commission, what constitutes, , tax reform and, term annuities, 397 overview, 410 payments, taxation of, 411 Annuitization, 3, 7, 73, 434, 435, 436 prescribed annuity contracts, as disposition, Annuity contracts, see also taxation on death Annuities, Charitable annuities, contract transferred to Deferred annuities, Insured beneficiary, annuities, Segregated funds general, 422 adjusted purchase price, 412, 427, 429 lump sum paid to beneficiary, 423 death, taxation on, 422 termination of contract on contract transferred to beneficiary, death, pre-1990 contracts general, 422 contracts acquired after lump sum paid to beneficiary, December 1, 1982 and before 423 January 1, 1990 termination of contract, 422 accrual taxation, 428 dispositions, 415, , 423 adjusted cost basis, 429 general, 409, 431 dispositions, taxation of, 429 income averaging annuity contracts payments, taxation of, 429 (IAACs), taxation on death, 429 last survivor, 403, 415 contracts acquired before payments, 409, 410 December 2, 1982 prescribed annuity contracts (PACs), accrual taxation, , 413 adjusted cost basis, 426 defined, 402, 413 disposition, taxation of, 427 payments, 411 payments, taxation of, 427 proceeds of disposition, pre-1982 unallocated income, surrenders, 418,

3 Annuity contracts (cont d) spousal, 94 taxation on death, 427 trusts, overview, 424 third party life contracts, 421, 424 B types, 397 Beneficiary Assignment 21-year deemed disposition rule, absolute Crummey trust, 325 general, 88 annuity contracts general rule, 89 contract transferred to, gifts, non-arm s length transfers, 89 death of owner, lump sum paid, 423 tax-free rollovers, capital beneficiaries, 301 generation transfers and charity as, 377, 382, 386, 387 intergeneration transfers, children, 164, 168 inter vivos transfer to spouse/common-law partner, common-law partner, annuity contracts, transfer out of a personal trust, corporation 95 business insurance trust, transfer to spouse/common-law deferred annuities, 397 partner at death, defined, 165, 168 business loan protection, grandchildren, 164, 168 deductibility, irrevocable disposition, as, creditor protection, charity, to, 388 intergenerational transfers, collateral life insurance deduction, notice of transfer, 172 exempt life insurance policy, minor, 289, 296, partnership property, leveraged insured annuities personally-owned insured annuities, collateral life insurance deduction, private corporation partnerships, 369 business insurance trust, structured settlements, 473 credit to capital dividend account, under Quebec Civil Code, Attribution rules Quebec, 162 corporate, 107 same-sex partners, 168 intergenerational transfers, 172 segregated funds,

4 Beneficiary (cont d) effective date, 21 shareholder designated, on exempt test, corporate-owned life insurance, 189 grandfathering, 22, spouse, 163 Bill C-139, see Notice of Ways and term-to-100 life insurance policy, Means Motion and Bill C trusts, 287 Borrowing, see also Business loan protection, Keyperson insurance withdrawal rights protection Crummey Trust, 325 general, 125 Benefits, see also Death benefit leveraged insured annuity, see employees Insured annuities, leveraged insured group life insurance premiums, annuities 189 leveraged life insurance programs, premiums paid by corporation, see Leveraged life insurance 189 programs shareholders Business loan protection beneficiary designation on assignment of, corporate-owned life insurance, deductibility of, disposition, as, 204 living buyout, benefits of strategy, 205 premiums paid by corporation, 189 deductibility, 204 transfer of ownership of defined, 203 corporate-owned insurance, 191 exempt policy, specified insurance benefit, 64 generally, taxable conversion benefit, 64 implementation, 204 Bill C-43, private corporation, 205 August 29, 2014 draft legislation, 21 tax rules, changes to 8 percent rule, 25 Buy/sell arrangements, see also changes to 350 percent test, Shareholders, Stop-loss rules changes to actuarial assumptions bare trustee, 237 and reserve methods, business insurance trust and, changes to calculation of ACB of policy, capital dividend account, use of, 236 changes to capital portion of annuity corporate- vs. personally-owned life payments from PACs, 25 insurance, changes to dispositions, allocation of cost of premiums, changes to joint policies, changes to NCPI calculation, creditor protection,

5 Buy/sell arrangements (cont d) Capital dividend account (CDA), ease of administration, , see also Capital dividend policing of policy premiums, 210 election, Dividends potential transfer of ownership, business loan protection strategy 212 and, 205 tax complexity, 211 buy/sell agreements tax leverage, 210 business insurance trusts, eligible dividend tax regime, share redemption method, generally, 208 use of, 236 split-dollar insurance arrangements, collateral assignment and, , 262, structuring agreement partners, 369 corporation share redemption corporate-owned insured annuity, method, 210, stop-loss rules and, 222 corporate partners crisscross purchase method, 209 proceeds of insurance policy, cross-purchase method, without use of trustee, creditor insurance arrangements and, with use of trustee, hybrid (combination) method, defined, donations stop-loss rules, 226 publicly-traded securities, optimization clauses, overview, 213 estate planning and holding companies, 183 promissory note method, 209, keyperson strategy and, share redemption method, leverage insurance and, leveraged insured annuity (LIA), C life insurance capital dividend Canada United States Income Tax account, see Life insurance capital Convention (1980), 326, 340 dividend account Capital cost allowance miscellaneous issues, recapture of, 149, 162, 379 non-residents, 183 payment of capital dividend, 186 planning to maximize, private company shares, gift of, 381 private corporation, of 673

6 Capital dividend account deemed disposition of, 162 (CDA) (cont d) depreciable, 162, 379 defined, 186 emigration, stop-loss rules, trusts fifty percent solution, 234 life insurance, spousal rollover, 233 Capital replacement, Capital dividend election, 187 Carter Commission Report, 2, 6, Capital gains deemed disposition, 162 Cash surrender value (CSV), donations and, 379 annuity contracts, 411 publicly-traded securities, 380 borrowing against policy, 125 exemption, , 162 defined, 75 lifetime capital gains, full surrender, qualified farm property, 162 leveraged insured annuities, qualified small business corporation shares, 162 partial surrenders, retirement compensation RRSP owning life insurance policy, arrangements, segregated funds, , spousal trusts, 310 share redemption agreements, transfers amalgamations, fifty percent solution, 229, 230, 234 corporate-owned insurance transferred to shareholder, spousal rollover, trust property, 290, 293 intercompany shareholdings, Capital losses retirement compensation non-arm s length, 89 arrangements, 251 partner to partnership, 353 segregated funds, 405, 407, partnership to partner, 351 share redemption agreement, shareholder to corporation, fifty percent solution, 229, 234 sister companies, spousal rollover, 233 wind-ups, 123 trusts term-to-100 policies, 446 life insurance, 292 Certificate of Compliance, 338 Capital property Charitable annuities, see also charitable donations of, 379 Annuities, Annuity contracts, 674

7 Charitable annuities (cont d) excepted gifts, 382 Deferred annuities, Insured loan back transactions, 382 annuities, Segregated funds non-qualifying securities, 382 general, 437 beneficiary, as, 382, 386 issued after Dec. 20, 2002, capital replacement, further technical clarifications, corporate donations, 377 Income Tax Technical News No. defined, , disbursement quota, split-receipting, year gifts, 377 issued before Dec. 21, 2002, donation tax credit, donations benefits of structure, 440 capital property, 379 charitable foundations, and, 440 election, 379 example of how they work, 438 in year of death, 379 financial realities, 439 life insurance, see Gifts general description, limits, 379 variations, fixed term annuities, mutual fund, units of, non-arm s length, 381 IT-110R3, 374, 438 IT-111R2, proceeds of sale of private company shares/real estate, Mortality Tables, Charitable foundations, 440 publicly-listed securities, 380 defined, 373 segregated fund, interest in, disbursement quota, private foundations, 374 segregated funds, gifts of, public foundations, shares, 392 Charitable giving, see also Charitable annuities, Charity, Gifts stock options, 380 defined, tax shelter arrangements, 383 general, 373 excepted gifts, 383, 392 split-dollar insurance arrangements, federal tax credit, gifts, see Gifts Charitable organization loan back transactions, 382 defined, non-qualifying security, 382 Charity, see also Charitable reduced inclusion rate annuities, Charitable giving publicly-listed securities, 380 anti-avoidance rules, stock options,

8 Charity (cont d) Corporate-owned insurance, see RRSP or RRIF insurance, 378 also Buy/sell arrangements, Split- tax incentives, dollar insurance arrangements, Stoploss rules annual limits, 379 amalgamations, 122 anti-avoidance rules, charitable gifts by Bill C-43 changes, deductibility, 192 general, 377 deemed retirement compensation tax shelter donation arrangements, arrangement, group life insurance, 189 Child deductibility, 189 defined, insured annuities Civil Code (Quebec) capital dividend account, 453 collateral assignment cash flow example while (hypothecation), 181 living, 451 Collateral insurance, see Assignment deemed disposition on death, 448 of policy general, 447 Common-law partner tax implications at death, 448, annuity contracts rollover, 419 valuation, transfer, 419 multi-life insurance, 55 58, 92, 356 deferred annuity retirement compensation rollover, 433 arrangement defined, 168, 416 deeming rules, inter vivos transfers, 93 share redemption agreements, rollover, , 229 annuity contracts, 419 shareholder designated as beneficiary, 184, 189 deferred annuity, 433 shares, see Shares share redemption strategies, 221 split-dollar insurance arrangement, transfer of property, 310 see Split-dollar insurance Corporate attribution rules, 107 arrangements Corporate investment stop-loss rules, see Stop-loss rules financial considerations, 242 transfer of policies, impact of corporation owning cash amalgamations, 122 value life insurance policy, 241 between related corporations introduction, 241 intercompany shareholdings, post-mortem tax considerations in comparing alternatives, sister companies,

9 Corporate-owned insurance (cont d) facts, 142 corporation to insured, 191 structure, 142 corporation to shareholder, tax risks RCA rules, partner to partnership, 353 retirement redemption, partnership to partner, facts, 139 shareholder to corporation, structure, tax risks wind-ups, 123 capital dividend account and, transfers on death 141 to common-law partner, 310 interest deductibility, 140 to spouse, 310 leveraged insurance and, 141 United States estate tax, 318 Creditor wind-ups, 122 protection of Corporation, see also Private buy/sell agreements, 211 corporation, Retirement compensation arrangements (RCA), protection from, 165, 167 Supplementary Executive Retirement partners, 370 Plan (SERP) Creditor insurance arrangements, annuity income 180 reporting requirements, capital dividend account and, 180 charitable donations, Creditor s life insurance, 200 corporate partner death of, 349 D proceeds of insurance policy, Death benefit, 8 9, advanced, sole shareholders, 348 capital gains exemption, financial statements, 200 gifts of life insurance to charities, leveraged insurance arrangements 390 living buyout, prescribed increase in, 13 facts, 145 defined, 13 structure, prescribed premium, 14 tax risks defined, 14 shareholder benefit issue, split-dollar insurance arrangements 146 corporate-owned death benefit, loan outstanding, time of repayment, 148 employee/shareholder owned pay bonus, death benefit,

10 Death benefit (cont d) keyperson protection, 205 universal life insurance, NCPI Deductibility from ACB, assignments premiums generally, 191 charitable gift, 192 historical perspective, collateral insurance Interpretation Bulletin IT-309R2, generally, 192, historical perspective, related matters, 200 Interpretation Bulletin IT- s. 20(1)(e.2), R2, amount deductible, related matters, 200 requirements for deductibility, creditor s life insurance, generally, 189 business loan protection group life insurance, 189 assignment of, 204 registered life insurance policy, charitable gifts 192 corporate-owned insurance, Registered Retirement Savings Plans (RRSPs), 192 donations s. 20(1)(e.2), corporations, amount deductible, gifts, 193 requirements for deductibility, group life insurance, interest retirement compensation arrangements leveraged insured annuity, employer contributions, 250 leveraged life insurance program qualifying employee contributions, 250 corporate applications shareholder contributions, 250 retirement redemption, split-dollar arrangements immediate borrowing taxable benefit, application, 149, 159 Deductions collateral loan to invest, collateral life insurance deduction, policy loan, retirement compensation individual retirement arrangements arrangement, employer contributions, 250 policy loan, qualifying employee segregated funds, contributions,

11 Deferred annuities, , see prescribed annuity, 434 also Annuities, Annuity contracts, surrender, 434 Charitable annuities, Insured annuities, Segregated funds partial surrender, 434 accumulating fund, 433 defined, accrual taxation, 433 disposition, annual reporting, 432, 436 exceptions, 433 annuitant, 431 general, 431 death of, 431, 435 Guaranteed Investment Certificates (GICs) and, 431 contracts last acquired after December 31, 1989 last acquired, 432 accrual taxation, 436 life contingency, 431 annual reports, 436 life insurance, as, 431 annuitization, 436 maturity date, 431 death of annuitant, 436 partial surrender, 434, 435, 436 policy gains, 436 policy gains, 434, 435, 436 surrender, 436 policy loan, 432, 433 partial, 436 prescribed annuity, , 410, contracts last acquired after March , 434, , 1977 and before January 1, defined, 410, payments, adjusted cost base, 435 registered, 436 annual reports, 435 surrender, 434, 435, 436 annuitization, 435 transfer, 433 death of annuitant, 436 Deferred Profit Sharing Plan, 248, general, , 409 policy gains, 435 Demutualization prescribed annuity, 435 defined, 63 surrender, 435 partial surrender, 435 tax regime, contracts last acquired prior to April Dependants, 161 1, 1977 Disposition, see also Proceeds of accrual taxation, 433 disposition, Surrender of policy adjusted cost base, 433 annuitization as, 11 annuitization, 434 annuity contracts, taxation of, death of annuitant, , 417, 422 general, 433 change of trustees, 302 policy gains, 433 deemed disposition on death,

12 Disposition (cont d) Dividend options corporate-owned insured annuity, accumulate at interest, cash, 45 deferred annuity, 433 exempt policies, funding tax liability, 162 purchase bonus paid up additions, leveraged insured annuity, 456, , 462 reduce premiums, 46 non-residents clearance requirements, term insurance enhancements, see Term insurance Dividends buy/sell agreements, personally-owned insured annuity non-prescribed, 447 capital dividend account, see Capital prescribed, 447 dividend account policy dividends, 88 capital dividends, valuation, buy/sell agreement deemed disposition rules on business insurance trust, emigration, exceptions, deferred annuities, 433 defined, exclusions, share redemption method, defined, 176 election, 175 leveraged insured annuity, general rules, non-residents payment of, 186 clearance requirements, declaration, 186 dual residents, 335 deemed, 221 general, 335 eligible dividend tax regime, taxable, 335 tax treaties, impact of, 341 nature of, 64 other properties deemed disposed of, participating whole life insurance, 104 see Participating whole life insurance terminology, 68 policy, see Policy dividend transfer of ownership, 88 tax-free, 159, 175 trusts Double taxation 21-year deemed disposition rule, dual residents, 335 under promissory note method, non-united States persons, segregated funds,

13 Double taxation (cont d) estate taxes, 164 share redemption agreements, funding deemed disposition, other costs, 164 United States estate tax, planning Draft legislation of August 29, 2014, capital dividend account and, 175, see Bill C preservation of, 162 E probate fees, 164 Election replenishing, 166 capital dividend election, RRIFs, 162 charitable donations RRSPs, 162 capital property, 379 share redemption agreement, out of spousal rollover, Emigration, United States estate taxes, see corporate-owned policies, 334 United States tax considerations and estate planning deemed disposition, exceptions, 333 Exempt policy, see also Disposition fair market value, 332 business loan strategy and, immigration, cash values of, 165 individuals, 333 collateral assignment, 165 property subject to, dividend options, 171 reporting requirements, 334 exempt test, 173, see also Exempt test tax, 332 gifts to charities, 381 taxable Canadian property, 332 intergenerational transfers, Employee inter vivos family trusts, benefits, introduction of, 7, 8 10 group life insurance premiums, keyperson insurance strategy and, premiums paid by corporation, leveraging, 171, see also Leveraged life insurance programs split-dollar insurance arrangements non-residents employee-owned death benefit, clearance requirements, policy dividend, 171 Estate policy loans, 170 collateral insurance, 165 probate fees and, 164 create, 165 retirement compensation equalization, 166 arrangements,

14 Exempt policy (cont d) non-qualifying security, 382 split-dollar arrangements, 173 partnership property supplementary executive retirement death of corporate partner, 348 plans, partnerships life insurance funded strategies funding buy/outs with life front end leveraged RCA insurance (FELRCA), 259 crisscross method, leveraged life insured SERP strategy, 255 basic, 356 life insured SERP strategy, 254 basic with corporate partners, 357 split-dollar life insured strategy, 257 beneficiary designated, 359 tax exempt accumulations, 165 trustee d, 359 taxation of, partnership purchase of interest, term-to-100, withdrawals, 170 corporate partners, 363 individual partners, 361 Exempt test, see also Bill C-43 surviving partners purchase background, interest, draft legislation of August 23, 2013, shares held by spousal trust, federal budget of 2012, transfers between intercompany F shareholdings, wind-ups, 122 Fair market value cash surrender value and, 104, 106 Family business succession planning charitable donations introduction, 231 capital property, 379 role of life insurance in common family business succession plans, corporate-owned insured annuity, sale to successor during life for deemed disposition on emigration, promissory note, deemed disposition upon death, transfer at death to successor, corporate-owned life insurance on use of estate freeze to transfer deceased shareholder, related parties ownership to successor during and other shareholders, life, 239 interest in life insurance, Federal budget leveraged insured annuity, , 2 4 life insurance shares, relief for existing policies, 4 682

15 Federal budget (cont d) taxation of policy gains on disposition, 3 4 Index immediate borrowing application, individual retirement application, , 4 5 new tax anniversary date, 5 Gifts policy loans as disposition, 5 capital replacement, , 5 6 charitable, see also Charity 2012, defined, Financial Accounting Standards split-dollar policy, 375 Board (FASB), 201 Foreign life insurance foreign property reporting rules, general, 341 taxation of, 342 Forms Form T733, 247 Form T1135, 341, 342 deductibility, 192 excepted, 383, 392 life insurance general, 89, IT-244R3, methods of gifting bequest of proceeds, 386 charity-owned policy, assignment of policy, 388 benefits of, 390 Form T1161, 334 disbursement quota and 10- Form T2054, 186, 187, 497 year gifts, Form T2062B, 337, 338 tax consequences of transfer, Form T2064, Form T2068, 338 value of policy, donor-owned policy, Form T2210, 86, 158, 525, 573 general, 387 Form T4A, 505, 515 types of policies, 387 T5 Supplementary, 515 non-qualifying security, G other insurance supported gifts, General Anti-Avoidance Rule private company shares, (GAAR), segregated funds, applicability, 462 defined, 462 Governance, 65 leveraged insurance arrangements Grandfathered policies, 7, application re interest effects of changes made to, deductibility, stop-loss rules, 226 general areas of concern, tax rules,

16 Group life insurance premiums Income Tax Folios benefits, 189 S3-F6-C1, Interest Deductibility, 86, deductibility of, , 128, 129, 140, 158, 370, 460, 553 Guaranteed Investment Certificates (GICs), 431 Income War Tax Act, 1917, 2, 398 Guaranteed Investment Funds Information Circular (GIFs) IC 72-17R6, 336 defined, 487 IC 89-3, 96, 98, 99, 100, 106, 108, hybrid allocation method, , 110, 112, 116, 121, 334, 352, time weighted units, , 579 Insured H defined, 165, 170 History of life insurance taxation, Insured annuities, see also 1 29 Annuities, Annuity contracts, Holding companies, 183, 212, 233 Charitable annuities, Deferred split-dollar insurance arrangements, annuities, Leveraged insured 283 annuities, Segregated funds advantages, 446 Hypothecation, 181 annuity characteristics, 445 I charitable context, 469 Immigration, see Emigration corporate-owned accounting for, 455 Income advantages, accrued, capital dividend account, 453 calculation of, cash flow example, defined, 410 general, 451 partnerships, 345 planning considerations, unallocated, 425 tax implications at death, Income averaging annuity contracts (IAACs), valuation, Income Tax Act defined, 445 excerpts, disadvantages, 446 Income Tax Act Regulations insurance characteristics, excerpts, leveraged insured annuities before Mar. 21, 2013 advantages, 456 general, 456 general description,

17 Insured annuities (cont d) leveraged insured annuity, risks involved collateral life insurance leveraged life insurance program deduction, corporate applications deemed disposition at death, retirement redemption, early payment penalty, 458 GAAR, general, 458 immediate borrowing General Anti-Avoidance Rule application, 150 (GAAR), collateral loan tied to policy, interest deductibility, interest rate fluctuations, 458 policy loan, tax shelter rules, partnership agreement, leveraged insured annuities on or policy loan, after Mar. 21, 2013 segregated funds, 485 consequences of being LIA rate fluctuations, 458 policy, Intergenerational transfers, 90 93, general, life insurance policy (LIA), International Financial Reporting Standards (IFRS), 66 non-prescribed annuities, 448, 453, 457 International issues owner profile, emigration, see Emigration personally-owned general, 317 cash flow example, 448 non-residents, see Non-residents general, 447 United States estate taxes, see United States tax considerations and planning considerations, 449 estate planning treatment at death, Interpretation Bulletins prescribed annuities, 434, 435, 436 IT-66R6, 177, 497 term-to-100 life insurance policy, 446, 453, 457, 462 IT-67R3, 117 trusts, owned by, IT-87R2, 67, 504 IT-110R3, 374, 438 Insurer IT-111R2, 437, 438, 439, 440, 441, property 602 segregated funds, 394 IT-242R, 346 Interest IT-244R3, 388, 389, 516 deductibility IT-278R2, 347 Income Tax Folio S3-F6-C1, 553 IT-309R, 194, 195,

18 Interpretation Bulletins (cont d) Level premium system, IT-309R2, 193, 196, 198, 199, 519 calculation, IT-355R2, 86, 158, 523 Leveraged insured annuities (LIAs) IT-365R2, 472, 473, 475, 478, 527 (on or after Mar. 21, 2013) IT-408R, 193, 315, 532 consequences of being, IT-416R3, 534 defined, IT-430R2, 141, 179, 180 general, 465 IT-430R3, 141, 180, 181, 182, 200, Leveraged life insurance programs 349, 350, 355, 535 corporate applications examples IT-447, 295 living buyout, IT-529, 539 analysis, 146 Irrevocable life insurance trusts facts, 145 (ILIT), 164, 309, , 329 structure, Ives Commission, tax risks K at time of repayment, Keyperson insurance protection shareholder benefit issue, benefits of strategy, deductibility, 207 use of capital dividend defined, 205 account, 149 exempt policy, 207 valuation of shares, 149 general, 205 while loan is outstanding, implementation, 206 pay a bonus, identify problem, 206 analysis, 142 initiate plan in event of death, 206 facts, 142 solve problem, 206 structure, 142 private corporation, 207 tax risks retirement compensation RCA rules, arrangement and, 281 retirement redemption, split-dollar insurance arrangements, analysis, facts, 139 tax rules, 207 structure, tax risks L capital dividend account and, Lenders insurance proceeds received by, interest deductibility,

19 Leveraged life insurance individual retirement application programs (cont d) example, exempt life insurance policy, facts, financial risks immediate borrowing application banking risks, 138 example, collateral loan, interest rate risk, analysis, 150 leveraging indexed accounts, collateral insurance deduction, life expectancy, 139 facts, 149 performance of product, 137 financial risk, 151 use of illustrations, 137 interest deductibility, 150 structure, 136 structure, 150 tax risks immediate borrowing application GAAR, /8 plans historical reference, interest deductibility, overview, 125 background and legislative changes, aggressive tax planning, /8 collateral loan tied to compound interest, 127 policy prior to 2013 budget General Anti-Avoidance Rule analysis, 155 (GAAR), application of, collateral insurance deduction, proposed legislation withdrawn, simple interest, 126 facts, 154 special rules in Quebec, 129 financial risk, 156 partnership retirement obligations, GAAR, interest deductibility, Life insurance structure, 154 assignment of, see Assignment 10/8 policy loan prior to 2013 benefits of personal insurance budget creditor protection during life, analysis, collateral insurance deduction, funding needs at death, estate creation, increase or facts, 156 replenish, 166 financial risks, 159 estate equalization, 166 interest deductibility, estate preservation, policy loan interest, 158 collateral insurance, 165 structure, estate taxes,

20 Life insurance (cont d) probate fees and other estate costs, Index impact of legislation and accounting standards, 65 Life insurance capital dividend tax liability for deemed account (LICDA), 15 16, 178 dispositions, Life insurance policy tax liability for registered plans, 164 accounting protecting dependants, authoritative support, 201 intergenerational transfers of, financial reporting, annuitized, 3 4 leveraging, 170 cash value, 301 other personal insurance charitable gift, as, strategies, 173 deemed disposition, see Disposition policy loans, 170 deferred annuities, 431 withdrawals, 170 defined, 1 defined, 1 disposition of, see Disposition gifts to charities, see Gifts emigration, 332 transfer of ownership gift, as, 384 corporate distributions, 89 general, 89 historical perspective general rule, 89 conclusion, 29 generational transfers, federal budget, 2 4 gifts, 89 relief for existing policies, 4 taxation of policy gains on intergenerational transfers, disposition, 3 4 inter vivos transfer to 1977 federal budget, 4 5 spouse/common-law partner, 93 new tax anniversary date, 5 non-arm s length, 90 policy loans as disposition, 5 tax-free rollovers, federal budget, 5 6 to spouse/common-law partner at Carter Commission Report, 2 death, 94 introduction, 1 trusts investing in, Notice of Ways and Means Motion, 7 16 Life insurance companies accounting standards for recognition pre-1968, 2 and measurement of financial assets of insurers, 65 disclosure in respect of participating and adjustable life insurance policies, owned by RRSP, 314 trust, see Trusts proceeds of

21 Life insurance policy (cont d) participating policyholders, received by corporate partners, demutualization, demutualization benefits tax received by individual partners, regime, permanent, received by lenders, gifts to charities, 386 received by private corporation, 178 limited-pay whole life, 44 received by trust, participating vs non-participating, reporting authoritative support, 201 pricing of, financial, 201 traditional whole life, see Traditional whole life transfers of, univeral life, see Universal life amalgamations, 122 substitute life, 92 between related corporations intercompany shareholdings, term, see Term insurance term-to-100, 43, 59, 98, 166, 389, sister companies, , 453, 462 corporation to insured, 191 universal life, see Universal life corporation to shareholder, valuation of, variable life insurance policies, partner to partnership, partnership to partner, Life insurance shares, shareholder to corporation, Limited-pay whole life insurance, 44 wind-ups, 123 Lump sum payments, , valuation of, Life insurance products M advanced death benefits, Maximum Tax Actuarial Reserve coverage options, (MTAR), 7, 411, 423 multi-life, 56 Mortality tables, 10, 31, 438 private corporation situations, 56 Mutual fund trusts, 407, , 483 splitting of, 58 single life and joint, 56 Mutual funds, 398, , 483, general, non-forfeiture options, see charitable donations of, Non forfeiture options GIFs and,

22 N life insurance capital dividend account, Net amount at risk, 52, 55, 76 tax rules, Net cost of pure insurance (NCPI), 7 rules prior to 2017 calculation of, 10, 76 accrual taxation, 7 8 changes to calculation, annuitization as disposition, 11 collateral insurance and, 198 exempt policies, 8 10 deduction from ACB, 76 pro-rating ACB, 11 reduction of ACB by, 10 11, 76 reduction of ACB by NCPI, split-dollar insurance arrangements premium based on term insurance, 272 O transfers, 279 Office of the Superintendent of Non-arm s length transfers, 89 Financial Institutions (OSFI), 476 grandfathered policies, Options Non-forfeiture options, dividend options, see Dividend automatic premium loan, 60 options cash value, 58 investment options, extended term values, 60 non-forfeiture options, see Non- reduced paid-up values, 59 forfeiture options Non-residents P Canadian purchaser, Partner, see also Partnership, clearance requirements, Partnership agreement dual-residents, 335 death of corporate partner, 348 general, 336 death of individual partner, 346 insured non-resident, 183 liability, 343 insurer non-resident, 183 life insurance policy transferred to, inter vivos gift or non-arm s length transfer, proceeds of life insurance policies non-resident purchaser, 339 and tax treaties, corporate partners, taxable dispositions, 336 individual partners, Notice of Ways and Means Motion retirement, 346 and Bill C-139, 7 16 old rules (grandfathered policies) pre-1982 funding the withdrawal of, transferring life insurance policy to effect of changes to, partnership,

23 Partnership, see also Partner, Partnership agreement, see also Partnership agreement Partner, Partnership agreement, see Partnership funding agreement creditor protection, annuities funding buy/outs with life reporting requirements, 401 insurance defined, 343 choosing structure for, 366 financial statements, 200 crisscross method, general, 343 basic, 356 general taxation of, basic with corporate partners, death of individual partner, death of sole shareholder of beneficiary designation, 359 corporate partner, 348 trustee d, 358 income, 345 general, 356 partner retirement, 346 partnership purchase of interest, partnership interest, year-end, 345 corporate partners, 363 income, 345 individual partners, 361 insurance needs, splitting the premium, 365 collateral insurance, surviving partners purchase funding partnership agreement, interest, 364 see Partnership agreement general, 344, 356 key partner coverage, 354 interest deductibility, personal insurance, partnership retirement obligations, liability, limited liability partnership (LLP), general, leveraged life insurance, 368 proceeds of life insurance policies magnitude of obligation, 367 and, pay-as-you-go, 367 individual partners, sinking fund, 367 corporate partners, with life insurance, 368 transferring policy to partner, general, Personal injury transferring policy to partnership, 353 defined, unlimited liability, Plaintiff year-end, 345 taxation of,

24 Policy exempt, 6, 7, 8 10, 16 interest in adjusted cost base defined, 4, 6 Policy dividend, 88, 171, 196 non-residents clearance requirements, Policy gains deferred annuity, 435 disposition of interest, 68 non-residents, 336 transfer of ownership, 88 Index registered life insurance policy, 192 Registered Retirement Savings Plans (RRSPs), 192 defined, 5 group life insurance, 189 level premium calculation, level premium system, see Level premium system loan, 60 paid by corporation on personallyowned insurance, 190 partnership buyouts crisscross method, basic, 356 Policy loan, 5, 69, 72, 74, 75, basic with corporate partners, Policyholder 357 borrowing against policy, 125 beneficiary designated, 359 taxation of, 1 2 trustee d, 358 Carter Commission, 2 splitting premium, 365 Premiums prescribed, calculation of, split-dollar insurance arrangements deductibility of general, 267 charitable gift, 193 premium split based on cash value, 272 premium split based on term insurance, 272 collateral insurance generally, 193, 194 historical perspective, Interpretation Bulletin IT- 309R2, related matters, 200 s. 20(1)(e.2), amount deductible, 196 requirements for deductibility, 195 Premiums payable under a life insurance policy defined, 75 Prescribed annuity contracts (PACs), 25, , 412, 417 Pricing elements of premium calculations creditor s life insurance, 200 expenses, employee benefits, 193 general, 31 generally, investment income, 33 group life insurance, 189 lapse,

25 Pricing (cont d) mortality, impact of assumptions, 33 level premium calculation, permanent policies, Index life insurance, 297 deemed disposition, see Disposition property subject to emigration tax, segregated funds, taxable Canadian property, 332 trust property, 290 United States situs assets, 164, 318 Private corporation business loan protection strategy, 204 capital dividend account, 175 Q keyperson insurance strategy and, life insurance proceeds received by, shares, 104, 162, 241 tax integration, 175 Quebec Probate fees, beneficiaries, 165 gifts of life insurance, 386, 390 Civil Code Qualified farm property, 162 Qualified small business corporation mutual funds, 482 collateral assignment personally-owned insured annuities, (hypothecation), trust provisions, 288, 294, 300 segregated funds, 482 testamentary insurance trusts and, R 289, 297, 298, 303 Registered Retirement Income Proceeds of disposition Funds (RRIFs), 162, 164, 167, 168, 247, 252, 326, 333, 377, 378, 391, adjusted cost base, , 413 in excess of, 3 4 RRIF insurance, 393 annuity contracts, 398, Registered Retirement Savings Plans defined, 74 (RRSPs), 136, 162, 164, 167, 168, dividends, , 247, 252, , 326, 333, policy dividends, , 378, 391, 393, 394, 400, 401, 402, 411, 413, 427 Promissory note IT-408R, 193, 315 disposition of shares under, owning life insurance policy, Property capital property RRSP insurance, 192 deemed disposition of, 162 segregated funds, 400, 402, 411 depreciable, 162 trusts and life insurance, emigration, trusts 693

26 Regulations, deductibility 201, 468 employer contributions, , 21, 25, 403, 412, 427, 439, 443 prohibited investment, , 420, 421, 422, 428 qualifying employee 304, 13, 166, 313, 402, 404, 411, contributions, , 416, 417, 442, 447, 450, 451 shareholder contributions, , 13, 426 deeming rules, , 8, 9, 21, 22, 25, 26, 73, 468 defined, , 7, 8, 21, 22, 76, 83, 411, 419 front end leveraged RCA 308, 10, 21, 24, 25, 26, 27, 76, 197, (FELRCA), , 420 general, , 11, 12, 13, 425 introduction, , 20, 21, 22, 26, 412 PACs, , 475 salary deferral arrangements (SDA), 1401, 7, 21, 23, 24, 25, 26, 27, 73, , 83, 411, 423 SERP, , 187 split-dollar insurance arrangements, 3702, , 314 taxation of, winding up, Reports annuities Rollover reporting requirements, children, deferred annuities, 431 common-law partner, 94 95, 163, 419 financial statements deferred annuity, 433 corporations, 200 grandchildren, partnerships, 200 intergenerational transfers, retirement compensation arrangement, 265 RRIFs, 164 RRSPs, 164 Restricted financial institution spousal rollover, 90 93, 163 defined, 195 annuity contracts, 419 Retirement compensation deferred annuity, 434 arrangements (RCA), see also Supplementary executive retirement partnership property, plan (SERP) share redemption structures, accounting for RCA funded by life insurance, 265 survivor spouse, 163 anti-avoidance rules, 247 tax-free, 90 audit initiative by CRA, 247 trust property 694

27 Rollover (cont d) registered investments, as, life insurance, residency, 486 securities, as, 405 S surrender, Segregated funds, see also Annuities taxation of acquisition fees, 485 general, adjusted cost base, income earned in fund, annuities, 403, , capital gains/losses, present, charitable donations of, 380 time-weighted units, 482 deemed disposition, 484 defined, 482 emigration exception, 333 T5 Supplementary form, 405 deemed inter vivos trust, 406 transfers in and out of fund, 405 defined, 398, , 481 withholding taxes and, 486 disposition of interest in, 484 Shareholders dividend tax credit, 405 agreement, 208, double taxation, potential for, 484 benefits, 189 flow-through treatment, 405 beneficiary designation on fund on fund investments, corporate-owned life insurance, general, 1, 404, 481 living buyouts, Guaranteed Investment Funds premiums paid by corporation, (GIFs), guarantee top-up payments, 488 transfer of ownership of guarantee withdrawal benefits, 488 corporate-owned insurance, 191 held by corporations, business insurance trusts, history, buy/sell agreements, see Buy/sell hybrid allocation method, 487 arrangements interest deductibility, 407, 485 deductibility introduction of, retirement compensation investment management fees, 485 arrangements, contributions to, maturity, leveraged insurance to pay bonus to, mutual funds and, , sole shareholders, death of, 349 non-resident insurer, 486 split-dollar insurance arrangement, non-resident purchaser, 486 see Split-dollar insurance property of, 406 arrangements 695

28 Shareholders (cont d) buy/sell arrangements, transfer of policies, charitable gift, as, 283, 289, 375 corporation to shareholder, defined, executive benefits, 280 shareholder to corporation, family situations, financing policy deposits Shares general, 272 buy/sell agreements, see Buy/sell arrangements premium split based on cash value, 273 capital gains exemption, premium split based on term charitable donations of, 380 insurance, 272 deemed disposition upon death, generally, holding company, 283 corporate-owned life insurance on deceased shareholder, related keyperson insurance, 281 parties and other shareholders, premium allocation general, 272 life insurance shares, premium split based on cash disposition of value, 273 under promissory note, premium split based on term insurance, 272 gifts retirement compensation private company shares, 381 arrangements, 282 grandfathered situations using arrangements stop-loss rules, 231 buy/sell arrangements, held by spousal trust, executive benefits, 280 qualified small business corporation family situations, 282 shares, 162 holding company, 283 share redemption agreement, , 229 keyperson insurance, 281 stop-loss rules, see Stop-loss rules retirement compensation arrangements, 282 valuation of, Supplementary Employment Specified insurance benefit Retirement Plan defined, 64 split-dollar life insured SERP Split-dollar insurance arrangements, strategy, tax treatment adjusted cost basis, assessing benefit, agreements, 284 characterizing taxable benefit, 277 alternative to, 284 deductibility of benefit,

29 Split-dollar insurance Stop-loss rules, arrangements (cont d) application, employee vs. shareholder, buy/sell agreements hybrid method, 209, 225 general, 273 share redemption method, 221, quantifying the benefit, transfers, 279 grandfathering rules, types planning, corporate-owned death benefit, fifty-percent solution, spousal rollover, use of, employee/shareholder owned death benefit, share redemption agreements, general, 267 summary, 235 uses, 267 Structured settlements Split receipting arrangements advantages of, 477 further clarifications, annuity qualifying as, 471 general rules, 440 assignment of, 476 Technical News No. 26, benefits to payor, 478 Spousal trust, casualty insurer, taxation of, 471, insurance policy, , 475 rollover, 163, defined, 471 share redemption strategies, 221 disadvantages, 477 shares held by, discount method, 478 United States estate tax discount rate, 478 tax credit relief, 328 financial reporting, 476 Spouse general, 471 annuity contracts inflation and, 478 rollover, 419 lump sum payments and, 471, 472, transfer, deferred annuity owner, taxation of, rollover, 433 plaintiff, taxation of, transfer to, 433 practical application, 477 inter vivos transfers, 93 recipient, taxation of, , 474 share redemption strategies reserve, rollover, 221 social benefit, spousal attribution rules, 94 social policy, tax-free rollovers, 90 technical requirements,

30 Succession plan, 237 Taxable Canadian property Succession planning, see Family defined, 332 business succession planning disposition, 332 Supplementary executive retirement Taxable conversion benefit plan (SERP), defined, 64 defined, 246 Technical News funded, 246 No. 12, 589 generally, 246 No 26, 595 investment options, 253 Term insurance, 34, life insurance strategies conversion features, front end leveraged RCA attained age conversion, 41 (FELRCA), original age conversion, 42 leveraged life insured SERP strategy, enhancements life insured SERP strategy, 254 one year term to insure cash value, 47 split-dollar life insured SERP strategy, options, 47 unfunded, 246 premium offset, 48 forms of, 42 Surrender of policy annual renewable term, 43 annuity contracts, 400, 418, and 20-year renewable term deferred annuity, 432 insurance, 43 defined, 81 level term insurance, 43 full surrender, general attributes, 41 non-residents gifts to charities, 376 clearance requirements, 336 group term insurance, 376 partial surrender, 82 84, 434 joint coverages, 42 segregated funds, 484, 485, 488 joint first-to-die, 42 joint last-to-die, 42, 306 T split-dollar insurance arrangements Tax integration NCPI, 272 defined, 175 premium split, 272 Tax shelter donation arrangements, Traditional whole life, credit options, Tax shelter rules, 464 accumulate at interest, 45 Tax Relief Reconciliation Act, 2001, cash, premium offset,

31 Traditional whole life (cont d) purchase paid-up additions, 45 Index attribution planning, 303 avoidance of 21-year rule, reduce premiums, 45 term insurance enhancements, 47 business insurance trusts, enhancement options, 47 change of trustee, one-year term to insure cash joint partner trusts, 297 value, 47 RRSPs, coverage options, 48 retirement compensation Trust arrangements, year deemed disposition rule, spousal trusts, testamentary insurance trusts, Crummey trust, alter ego trust, , 301, 328, United States estate tax and, mutual fund trust, 407, attribution planning, 303 property, attribution rules, 296 Quebec provisions, 162, 288, 294, beneficiaries, see Beneficiaries 300 business insurance trusts, retirement compensation buy/sell agreements, capital property life insurance as, cash value life insurance policy, 301, 303 change of trustees, 302 Crummey trust, 325 defined, generally, 287 income, 296 insurance proceeds received by, , 299 inter vivos family trusts, 173 inter vivos trusts, 307 investments, 299 irrevocable life insurance trusts (ILIT), 309 joint partner trusts, , 417 arrangements, 309, see also Retirement compensation arrangements, Supplementary Executive Retirement Plan (SERP) segregated fund trust, see Segregated funds SERP, see Supplementary Executive Retirement Plan (SERP) spousal trusts, insurance policies, rollover, 163 shares held by, 103 United States estate tax, 309 taxation of attribution rules, 296 conduit taxed as individual, general considerations, life insurance and, residence of trust, alter ego trusts, 310 types of personal trusts,