INDEX. Segregated funds, Structured pre-1990 contracts, settlements deferred annuities, accrual taxation rules,

Transcription

1 INDEX 21-year deemed disposition rule, Crummey trust and, 353 A Accounting for life insurance, Accounting standards, Accrual reporting annuities, keyperson insurance strategy and, pro-rating, 11 reduction by NCPI, 10 11, Adjusted purchase price, 442, 457, 459 Advanced death benefit, Aggressive tax planning, Annuitant death of, , 480 defined, 424, 446 Accrual taxation, 7 8, annuities introduction of, Annuities, see also Annuity contracts, annuity contracts Charitable annuities, Deferred post-1989 contracts, annuities, Insured annuities, Segregated funds, Structured pre-1990 contracts, settlements deferred annuities, accrual taxation rules, contracts last acquired after exempted, 432 December 31, 1989, 466 deemed disposition rules, 482 contracts last acquired prior to April 1, 1977, deferred, contracts last acquired after defined, 427 March 31, 1977 and before general, 1, 427 January 1, 1990, grandfathered, 432 Accumulating fund, 7 11, 85, 449 immediate, 439 Adjusted cost base, 3, 4, 5, 6, 7, 8, income requirement to report, 431 calculation of, life annuities, 427, 428, 429, 439 examples of, non-prescribed, 464, 466, 485 defined, 3, 4, prescribed, , formula, qualifying as structured settlement, grandfathered policies, 11, 12,

2 Annuities (cont d) adjusted cost basis, reporting requirements, 440, 462 overview, 447 segregated fund, 428 proceeds of disposition, taxation of accrual taxation, what constitutes, 448 early, overview, 440 Carter Commission, payments, taxation of, tax reform and, prescribed annuity contracts, term annuities, 427 taxation on death Annuitization, 3, 7, 11, 82, 464, 465, contract transferred to 466 beneficiary, as disposition, 11 general, 452 Annuity contracts, see also lump sum paid to Annuities, Charitable annuities, beneficiary, 453 Deferred annuities, Insured termination of contract on annuities, Segregated funds death, death, taxation on, 452 pre-1990 contracts contract transferred to beneficiary, contracts acquired after December 1, 1982 and before general, 452 January 1, 1990 lump sum paid to beneficiary, accrual taxation, adjusted cost basis, 458 termination of contract, dispositions, taxation of, 459 general, 439 payments, taxation of, 459 income averaging annuity contracts taxation on death, 459 (IAACs), contracts acquired before last survivor, 433, 445 December 2, 1982 payments, accrual taxation, prescribed annuity contracts (PACs), adjusted cost basis, disposition, taxation of, 457 defined, 440 payments, taxation of, payments, proceeds of disposition, 442, 447 pre-1982 unallocated income, surrenders, taxation of taxation on death, post-1989 contracts overview, 454 accrual taxation of, dispositions, taxation of 734

3 Assignment B absolute Beneficiary general, year deemed disposition rule, general rule, gifts, non-arm s length transfers, Crummey trust, annuity contracts tax-free rollovers, contract transferred to, generation transfers and death of owner, lump sum paid, intergeneration transfers, capital beneficiaries, 322 inter vivos transfer to spouse/common-law partner, charity as, 406, 407, 412, 415, children, , 181 transfer out of a personal trust, common-law partner, annuity contracts, transfer to spouse/common-law corporation partner at death, business insurance trust, business loan protection, defined, 315, 317 deductibility, grandchildren, , 181 disposition, as, irrevocable charity, to, creditor protection, collateral life insurance deduction, intergenerational transfers, exempt life insurance policy, notice of transfer, 185 leveraged insured annuities minor, 176, 318, 330 collateral life insurance deduction, partnership property, personally-owned insured annuities, partnerships, structured settlements, 510 private corporation business insurance trust, Attribution rules credit to capital dividend account, corporate, intergenerational transfers, Quebec, 176 spousal, 103 same-sex partners, 181 trusts, 324 segregated funds, shareholder designated, on corporate-owned life insurance, spouse,

4 Beneficiary (cont d) term-to-100 life insurance policy, 478 Index grandfathering (G2 policies), 22, trusts, 315 Bill C-139, see Notice of Ways and Means Motion and Bill C-139 withdrawal rights Borrowing, see also Business loan Crummey Trust, 353 protection, Keyperson insurance protection Benefits, see also Death benefit employees group life insurance premiums, premiums paid by corporation, 213 shareholders beneficiary designation on corporate-owned life insurance, Business loan protection assignment of, living buyout, deductibility of, 228 premiums paid by corporation, disposition, as, general, 137 leveraged insured annuity, see Insured annuities, leveraged insured annuities leveraged life insurance programs, see Leveraged life insurance programs benefits of strategy, 229 transfer of ownership of corporate-owned insurance, deductibility, defined, 227 specified insurance benefit, 71 exempt policy, 229 taxable conversion benefit, 70 generally, Bill C-43, implementation, 228 August 29, 2014 draft legislation, 21 private corporation, 229 changes to 8 percent rule, tax rules, changes to 250 percent test, 26 Buy/sell arrangements, see also changes to actuarial assumptions Shareholders, Stop-loss rules and reserve methods, bare trustee, 264 changes to calculation of ACB of business insurance trust and, policy, changes to capital portion of annuity capital dividend account, use of, payments from PACs, changes to dispositions, 28 corporate- vs. personally-owned life changes to joint policies, insurance, changes to NCPI calculation, allocation of cost of premiums, effective date, exempt test, creditor protection,

5 Buy/sell arrangements (cont d) business insurance trusts, ease of administration, 234 share redemption method, family law (Ontario), policing of policy premiums, 234 use of, potential transfer of ownership, collateral assignment and, , tax complexity, 235 corporate-owned insured annuity, tax leverage, eligible dividend tax regime, corporate partners proceeds of insurance policy, generally, split-dollar insurance arrangements, creditor insurance arrangements and, structuring agreement defined, 203 corporation share redemption donations method, 233, publicly-traded securities, 411 stop-loss rules and, 246 estate planning and holding crisscross purchase method, companies, hybrid (combination) method, keyperson strategy and, leverage insurance and, stop-loss rules, leveraged insured annuity (LIA), optimization clauses, overview, 237 life insurance capital dividend promissory note method, account, see Life insurance capital dividend account share redemption method, miscellaneous issues, non-residents, 206 C payment of capital dividend, Canada United States Income Tax Convention (1980), 355, 368 planning to maximize, Capital cost allowance private company shares, gift of, 412 recapture of, , 337, 410 private corporation, of Capital dividend account (CDA), defined, , see also Capital dividend stop-loss rules, election, Dividends fifty percent solution, business loan protection strategy and, 227 spousal rollover, buy/sell agreements Capital dividend election,

6 Capital gains Carter Commission Report, 2, 6, 430 deemed disposition, 176 Cash surrender value (CSV), 83 donations and, 410 annuity contracts, 441 publicly-traded securities, 411 borrowing against policy, 137 exemption, , 176 defined, 83 lifetime capital gains, full surrender, qualified farm property, 176 leveraged insured annuities, qualified small business corporation shares, 176 partial surrenders, retirement compensation RRSP owning life insurance policy, arrangements, segregated funds, spousal trusts, 337 share redemption agreements, transfers amalgamations, fifty percent solution, 247, 257, corporate-owned insurance transferred to shareholder, spousal rollover, trust property, 315 intercompany shareholdings, Capital losses retirement compensation non-arm s length, 98 arrangements, 278 partner to partnership, 383 segregated funds, , 517 partnership to partner, 382 share redemption agreement, shareholder to corporation, fifty percent solution, 247, sister companies, wind-ups, 134 spousal rollover, 261 term-to-100 policies, 486 trusts Certificate of Compliance, 366 life insurance, 315 Charitable annuities, see also Capital property Annuities, Annuity contracts, charitable donations of, 410 Deferred annuities, Insured deemed disposition of, 176 annuities, Segregated funds depreciable, 176, 410 general, 469 emigration, issued after Dec. 20, 2002, trusts further technical clarifications, life insurance, 322, 326 Income Tax Technical News No. Capital replacement, ,

7 Charitable annuities (cont d) disbursement quota, split-receipting, year gifts, 407 issued before Dec. 21, 2002, donation tax credit, donations benefits of structure, 472 capital property, 410 charitable foundations, and, 472 election, 410 example of how they work, 470 in year of death, 410 financial realities, 471 life insurance, see Gifts general description, limits, 410 variations, fixed term annuities, mutual fund, units of, non-arm s length, 412 IT-110R3, 404, 470 publicly-listed securities, 411 IT-111R2, segregated fund, interest in, Mortality Tables, 470, Charitable foundations, 472 segregated funds, gifts of, defined, disbursement quota, shares, 422 private foundations, stock options, 411 public foundations, tax shelter arrangements, 413 Charitable giving, see also excepted gifts, 412 Charitable annuities, Charity, Gifts federal tax credit, 407 defined, gifts, see Gifts general, 403 loan back transactions, 412 split-dollar insurance arrangements, non-qualifying security, reduced inclusion rate Charitable organization publicly-listed securities, 408 defined, 404 stock options, 411 Charity, see also Charitable RRSP or RRIF insurance, 407 annuities, Charitable giving tax incentives, anti-avoidance rules, annual limits, 410 excepted gifts, 412 anti-avoidance rules, loan back transactions, 412 Bill C-43 changes, 408 non-qualifying securities, 412 general, 407 beneficiary, as, 412 tax shelter donation arrangements, capital replacement, corporate donations, 408 Child defined, defined,

8 Civil Code (Quebec) collateral assignment (hypothecation), 204 Collateral insurance, see Assignment of policy Index insured annuities capital dividend account, 485 cash flow example while living, 483 deemed disposition on death, 480 general, 479 tax implications at death, 480, valuation, Common-law partner annuity contracts rollover, 449 transfer, 449 multi-life insurance, 63 65, 101, deferred annuity 387, 389 rollover, 463 retirement compensation defined, 181, 446 arrangement inter vivos transfers, 103 deeming rules, 287, rollover, 177 share redemption agreements, annuity contracts, , 262 deferred annuity, 463 shareholder designated as beneficiary, 212 share redemption strategies, 260 shares, see Shares transfer of property, 337 split-dollar insurance arrangement, Corporate attribution rules, see Split-dollar insurance arrangements Corporate investment financial considerations, 269 stop-loss rules, see Stop-loss rules impact of corporation owning cash transfer of policies, value life insurance policy, amalgamations, 133 introduction, 268 between related corporations post-mortem tax considerations in intercompany shareholdings, comparing alternatives, Corporate-owned insurance, see sister companies, also Buy/sell arrangements, Splitdollar insurance arrangements, Stop- corporation to shareholder, corporation to insured, loss rules amalgamations, 133 partner to partnership, 383 charitable gifts by partnership to partner, 382 deductibility, 215 shareholder to corporation, deemed retirement compensation arrangement, 231 wind-ups, 134 group life insurance, 212 transfers on death deductibility, 212 to common-law partner,

9 Corporate-owned insurance (cont d) to spouse, 337 United States estate tax, 345 wind-ups, 134 Index capital dividend account and, interest deductibility, leveraged insurance and, 153 Corporation, see also Private corporation, Retirement Creditor compensation arrangements (RCA), protection of Supplementary Executive Retirement buy/sell agreements, Plan (SERP) protection from, 179, annuity income partners, 401 reporting requirements, Creditor insurance arrangements, charitable donations, corporate partner capital dividend account and, 203 death of, 379 proceeds of insurance policy, D Death benefit, 8 9, sole shareholders, 379 advanced, financial statements, capital gains exemption, leveraged insurance arrangements gifts of life insurance to charities, living buyout, facts, 157 prescribed increase in, 13 structure, defined, 13 prescribed premium, 14 tax risks defined, 14 shareholder benefit issue, 159 split-dollar insurance arrangements loan outstanding, corporate-owned death benefit, time of repayment, employee/shareholder owned death benefit, pay a bonus, universal life insurance, facts, 154 Deductibility structure, 154 assignments tax risks generally, 215 RCA rules, historical perspective, retirement redemption, Interpretation Bulletin IT-309R2, facts, structure, related matters, tax risks s. 20(1)(e.2),

10 Deductibility (cont d) Interpretation Bulletin IT- amount deductible, R2, requirements for deductibility, related matters, creditor s life insurance, 223 business loan protection generally, 212 assignment of, group life insurance, charitable gifts registered life insurance policy, corporate-owned insurance, Registered Retirement Savings Plans (RRSPs), 216 donations s. 20(1)(e.2), corporations, amount deductible, gifts, 217 requirements for deductibility, group life insurance, interest retirement compensation leveraged insured annuity, arrangements employer contributions, 277 leveraged life insurance program qualifying employee corporate applications contributions, 277 retirement redemption, shareholder contributions, split-dollar arrangements immediate borrowing taxable benefit, application, 164, 167, 169 Deductions collateral loan to invest, collateral life insurance deduction, policy loan, retirement compensation individual retirement arrangements arrangement, 151 employer contributions, 277 policy loan, qualifying employee segregated funds, contributions, 277 keyperson protection, Deferred annuities, , see NCPI also Annuities, Annuity contracts, Charitable annuities, Insured from ACB, annuities, Segregated funds premiums accumulating fund, 463 charitable gift, 217 accrual taxation, 463 collateral insurance annual reporting, 463, 465 generally, 217 annuitant, 461 historical perspective, death of, 461,

11 Deferred annuities (cont d) Guaranteed Investment Certificates contracts last acquired after (GICs) and, 461 December 31, 1989 last acquired, 463 accrual taxation, 466 life contingency, 461 annual reports, 466 life insurance, as, 461 annuitization, 466 maturity date, 461 death of annuitant, 466 partial surrender, 464, 465, 466 policy gains, 466 policy gains, 464, 465, 466 surrender, 466 policy loan, 462, 463 partial, 466 prescribed annuity, , contracts last acquired after March , 464, , 1977 and before January 1, 1990 defined, 432, 702 adjusted cost base, 465 payments, 442 annual reports, 465 registered, annuitization, surrender, 464, 465, 466 death of annuitant, 466 transfer, 463 general, 465 Deferred Profit Sharing Plan, 275, policy gains, , 436 prescribed annuity, 465 Demutualization surrender, 465 defined, 70 partial surrender, 465 tax regime, contracts last acquired prior to April Dependants, , 1977 accrual taxation, Disposition, see also Proceeds of disposition, Surrender of policy adjusted cost base, 464 annuitization as, 11 annuitization, 464 annuity contracts, taxation of, death of annuitant, , 447, 452 general, 463 change of trustees, 329 policy gains, 463 deemed disposition on death, 3 4 prescribed annuity, 464 corporate-owned insured annuity, surrender, partial surrender, 464 deferred annuity, 463 defined, funding tax liability, 176 disposition, leveraged insured annuity, exceptions, , 498 general, non-residents 743

12 Disposition (cont d) term insurance enhancements, see clearance requirements, Term insurance Dividends personally-owned insured annuity capital dividend account, see Capital non-prescribed, 479 dividend account prescribed, 479 capital dividends, policy dividends, 97 buy/sell agreement valuation, business insurance trust, deemed disposition rules on emigration, share redemption method, exceptions, deferred annuities, 463 defined, 197 defined, election, 197 exclusions, leveraged insured annuity, general rules, 76 payment of, non-residents declaration, clearance requirements, deemed, 245 dual residents, 363 eligible dividend tax regime, general, taxable, 363 participating whole life insurance, tax treaties, impact of, 368 see Participating whole life other properties deemed disposed of, insurance 114 policy, see Policy dividend terminology, 76 tax-free, 197 transfer of ownership, 97 Double taxation trusts dual residents, year deemed disposition rule, non-united States persons, segregated funds, 520 under promissory note method, share redemption agreements, Dividend options United States estate tax, accumulate at interest, 52 Draft legislation of August 29, 2014, cash, 52 see Bill C-43 exempt policies, 179 E purchase bonus paid up additions, 53 Election reduce premiums, 52 capital dividend election,

13 Election (cont d) charitable donations capital property, 410 out of spousal rollover, 103 Index RRSPs, 177 share redemption agreement, United States estate taxes, see United States tax considerations and estate planning Emigration, corporate-owned policies, 362 Exempt policy, see also Disposition deemed disposition, business loan strategy and, fair market value, 360 cash values of, 179 immigration, 362 collateral assignment, 179 individuals, dividend options, 184 property subject to, exempt test, 186, see also Exempt reporting requirements, test tax, 360 gifts to charities, 412 taxable Canadian property, 361 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, 184, see also Leveraged 213 life insurance programs split-dollar insurance arrangements non-residents employee-owned death benefit, clearance requirements, policy dividend, 184 Estate policy loans, 184 collateral insurance, 179 probate fees and, 178 create, 179 retirement compensation equalization, 180 arrangements, 337 estate taxes, 178 split-dollar arrangements, 187 funding deemed disposition, 176 supplementary executive retirement plans, other costs, 178 life insurance funded strategies planning front end leveraged RCA capital dividend account and, 195, (FELRCA), , leveraged life insured SERP preservation of, 176 strategy, 284 probate fees, 178 life insured SERP strategy, 284 replenishing, 179 split-dollar life insured strategy, RRIFs,

14 Exempt policy (cont d) beneficiary designated, 390 tax exempt accumulations, 184 trustee d, taxation of, partnership purchase of interest, term-to-100, withdrawals, 184 corporate partners, Exempt test, see also Bill C-43 individual partners, background, surviving partners purchase interest, draft legislation of August 23, 2013, shares held by spousal trust, federal budget of 2012, transfers between intercompany F shareholdings, wind-ups, 134 Fair market value cash surrender value and, 110, Family business succession planning introduction, charitable donations role of life insurance in common capital property, 410 family business succession plans, corporate-owned insured annuity, sale to successor during life for promissory note, 265 deemed disposition on emigration, transfer at death to successor, deemed disposition upon death, use of estate freeze to transfer ownership to successor during corporate-owned life insurance on life, 266 deceased shareholder, related parties and other shareholders, Federal budget interest in life insurance, , 2 4 leveraged insured annuity, relief for existing policies, 4 life insurance shares, taxation of policy gains on non-qualifying security, 412 disposition, 3 4 partnership property 1977, 4 5 death of corporate partner, 378 new tax anniversary date, 5 partnerships policy loans as disposition, 5 funding buy/outs with life 1981, 5 6 insurance 2012, criss-cross method, Financial Accounting Standards basic, 387 Board (FASB), 225 basic with corporate partners,

15 Foreign life insurance excepted, , 422 foreign property reporting rules, life insurance general, general, 369 IT-244R3, 417 taxation of, methods of gifting Forms bequest of proceeds, Form T3, 524 charity-owned policy, Form T4A, 535 assignment of policy, Form T733, Form T1135, 370 benefits of, 420 Form T1161, 363 disbursement quota and 10- year gifts, Form T2054, 210 tax consequences of transfer, Form T2062B, Form T2064, 366 value of policy, Form T2068, 366 donor-owned policy, Form T2210, 95, 172 general, 415 Form T5008, 520 types of policies, 415 non-qualifying security, G other insurance supported gifts, General Anti-Avoidance Rule (GAAR), private company shares, 422 applicability, 495 segregated funds, defined, 495 Governance, 71 leveraged insurance arrangements Grandfathered policies, 7, application re interest deductibility, effects of changes made to, general areas of concern, stop-loss rules, 246 immediate borrowing application, tax rules, , 167, 169 Group life insurance premiums individual retirement application, benefits, deductibility of, Gifts Guaranteed Investment Certificates capital replacement, (GICs), 461 charitable, see also Charity Guaranteed Investment Funds defined, (GIFs) split-dollar policy, 405 defined, deductibility, 217 hybrid allocation method,

16 Guaranteed Investment Funds Information Circular (GIFs) (cont d) IC 72-17R6, 364 time weighted units, 524 IC 89-3, 105, 106, 107, 108, 109, 118, 122, 126, 131, 382, 419, 645 H Insured History of life insurance taxation, 1 30 defined, 178, 183 Insured annuities, see also Holding companies, 206, 207, 235, Annuities, Annuity contracts, 311 Charitable annuities, Deferred split-dollar insurance arrangements, annuities, Leveraged insured 311 annuities, Segregated funds Hypothecation, 204 advantages, 478 annuity characteristics, 477 I charitable context, 503 Immigration, see Emigration corporate-owned Income accounting for, accrued, advantages, 488 calculation of, capital dividend account, 485 defined, 432 cash flow example, partnerships, 375 general, 483 unallocated, 455, 456 planning considerations, 488 tax implications at death, Income averaging annuity contracts (IAACs), defined, 477 Income Tax Act disadvantages, 478 excerpts, insurance characteristics, Income Tax Act Regulations leveraged insured annuities before excerpts, Mar. 21, 2013 advantages, 489 Income Tax Folios general, 489 S3-F2-C1, Capital Dividends, 153, 199, 202, 380, 385, 583 general description, S3-F6-C1, Interest Deductibility, 95, risks involved 138, 140, 141, 152, 172, 401, 492, collateral life insurance 493, 603 deduction, S7-F1-C1, Split-receipting and deemed disposition at death, Deemed Fair Market Value, 404, , 473, 627 early payment penalty, 491 Income War Tax Act, 1917, 2, 428 general,

17 Insured annuities (cont d) collateral loan tied to policy, General Anti-Avoidance Rule (GAAR), policy loan, interest deductibility, partnership agreement, interest rate fluctuations, 491 policy loan, tax shelter rules, segregated funds, 522 leveraged insured annuities on or rate fluctuations, 491 after Mar. 21, 2013 Intergenerational transfers, , consequences of being LIA policy, general, 499 International Financial Reporting Standards (IFRS), 72 life insurance policy (LIA), International issues non-prescribed annuities, 464, 466, emigration, see Emigration 485 general, 345 owner profile, 478 non-residents, see Non-residents personally-owned United States estate taxes, see cash flow example, United States tax considerations and estate planning general, 479 planning considerations, Interpretation Bulletins treatment at death, 480 IT-67R3, 127 prescribed annuities, IT-87R2, 75, 535 term-to-100 life insurance policy, IT-110R3, 404, , 486, 494 IT-111R2, 469, 470, 471, 472, 473 trusts, owned by, 482 IT-242R, 376 Interest IT-244R3, 417, 418, 547 deductibility IT-278R2, 377 IT-305R4, 341 Income Tax Folio S3-F6-C1, , 603 IT-309R2, 217, 218, 219, 220, 222, 223, 550 leveraged insured annuity, IT-355R2, 95, 172, 554 leveraged life insurance program IT-365R2, 506, 507, 509, 513, 558 corporate applications IT-408R, 216, 343, 563 retirement redemption, IT-416R3, IT-430R2, 153, 202, 203 GAAR, IT-430R3, 153, 203, 204, 205, 224, immediate borrowing 379, 566 application, 164 IT-447,

18 Interpretation Bulletins (cont d) Leveraged life insurance programs IT-529, 570 corporate applications examples IT-533, 401 living buyout, Irrevocable life insurance trusts analysis, 158 (ILIT), 178, facts, 157 Ives Commission, structure, tax risks K at time of repayment, Keyperson insurance protection benefits of strategy, , back-to-back shareholder loan rules, deductibility, 231 shareholder benefit issue, 159 defined, 229 use of capital dividend exempt policy, 231 account, 163 general, 229 valuation of shares, 162 implementation, 230 while loan is outstanding, identify problem, initiate plan in event of death, pay a bonus, analysis, 154 solve problem, 230 facts, 154 private corporation, 231 structure, 154 retirement compensation tax risks arrangement and, 291, RCA rules, split-dollar insurance arrangements, retirement redemption, analysis, 152 tax rules, 231 facts, 151 L structure, Lenders tax risks insurance proceeds received by, capital dividend account and, interest deductibility, Level premium system, Leveraged insured annuities (LIAs) exempt life insurance policy, 179 (on or after Mar. 21, 2013) GAAR concerns, consequences of being, immediate borrowing application defined, example, collateral loan, general, 499 analysis,

19 Leveraged life insurance leveraging indexed accounts, programs (cont d) 150 collateral insurance deduction, life expectancy, performance of product, 149 facts, 163 use of illustrations, 149 financial risk, 165 structure, interest deductibility, 164 tax risks structure, GAAR, 151 immediate borrowing application 10/8 plans historical reference, interest deductibility, overview, background and legislative aggressive tax planning, changes, compound interest, /8 collateral loan tied to policy prior to 2013 budget General Anti-Avoidance Rule (GAAR), application of re analysis, 169 interest, collateral insurance deduction, proposed legislation (2003) 170 withdrawn, 141 facts, 168 simple interest, financial risk, 170 special rules in Quebec, 141 GAAR, 169 partnership retirement obligations, interest deductibility, structure, Life insurance 10/8 policy loan prior to 2013 budget assignment of, see Assignment analysis, 171 benefits of personal insurance collateral insurance deduction, creditor protection during life, facts, 170 funding needs at death, financial risks, 173 estate creation, increase or interest deductibility, replenish, policy loan interest, 172 estate equalization, 180 structure, estate preservation, individual retirement application collateral insurance, 179 example, estate taxes, 178 facts, 148 probate fees and other estate financial risks costs, banking risks, 150 tax liability for deemed interest rate risk, dispositions,

20 Life insurance (cont d) Life insurance policy tax liability for registered accounting plans, authoritative support, protecting dependants, financial reporting, intergenerational transfers of, annuitized, cash value, 301 leveraging, 184 charitable gift, as, other personal insurance deemed disposition, see Disposition strategies, deferred annuities, 462 policy loans, 184 defined, 1 withdrawals, 184 disposition of, see Disposition defined, 1 emigration, 360 gifts to charities, see Gifts gift, as, 414 transfer of ownership historical perspective corporate distributions, 97 conclusion, 30 general, federal budget, 2 4 general rule, 98 relief for existing policies, 4 generational transfers, taxation of policy gains on gifts, disposition, 3 4 intergenerational transfers, 1977 federal budget, new tax anniversary date, 5 inter vivos transfer to policy loans as disposition, 5 spouse/common-law partner, federal budget, 5 6 non-arm s length, 100 Carter Commission Report, 2 tax-free rollovers, 100 introduction, 1 to spouse/common-law partner at Notice of Ways and Means death, Motion, December 1, 1982 (Bill C-139), 7 16 Life insurance companies pre-1968, 2 accounting standards for recognition and measurement of financial assets owned by of insurers, 72 RRSP, 343 disclosure in respect of trust, see Trusts participating and adjustable life proceeds of insurance policies, 72 received by corporate partners, impact of legislation and accounting standards, received by individual partners, Life insurance capital dividend 379 account (LICDA), 15 16, 199 received by lenders,

21 Life insurance policy (cont d) limited-pay whole life, received by private corporation, participating vs non-participating, received by trust, pricing of, reporting traditional whole life, see authoritative support, Traditional whole life financial, univeral life, see Universal life transfers of, substitute life, 101 amalgamations, term, see Term insurance between related corporations term-to-100, 22, 23, 49 50, 65, 107, intercompany shareholdings, 111, 180, 300, 304, 418, 478, 486, sister companies, universal life, see Universal life corporation to insured, valuation of, corporation to shareholder, variable life insurance policies, Life insurance shares, partner to partnership, 383 Limited-pay whole life insurance, partnership to partner, shareholder to corporation, Lump sum payments, 506, wind-ups, 134 M valuation of, Maximum Tax Actuarial Reserve Life insurance products (MTAR), 7, 441, advanced death benefits, Mortality tables, 10, 33, 34, 45, 85, coverage options, multi-life, Mutual fund trusts, 438, 517, 519 private corporation situations, Mutual funds, 428, 517, charitable donations of, 411 splitting of, GIFs and, single life and joint, 63 non-forfeiture options, see Non- N forfeiture options Net amount at risk, 58 59, 62, 85 participating policyholders, demutualization, 70 Net cost of pure insurance (NCPI), 7 demutualization benefits tax calculation of, 10, 85 regime, changes to calculation, permanent, collateral insurance and, 221 gifts to charities, 415 deduction from ACB,

22 Net cost of pure insurance rules prior to 2017 (G2 policies) (NCPI) (cont d) accrual taxation, 7 8 reduction of ACB by, 10 12, 85 annuitization as disposition, 11 split-dollar insurance arrangements exempt policies, 8 10 premium based on term pro-rating ACB, 11 insurance, 300 reduction of ACB by NCPI, transfers, Non-arm s length transfers, 98 grandfathered policies, 15 O Office of the Superintendent of Non-forfeiture options, Financial Institutions (OSFI), 510 automatic premium loan, 66 Options cash value, 65 dividend options, see Dividend extended term values, 66 options reduced paid-up values, investment options, 57 Non-residents non-forfeiture options, see Nonforfeiture options Canadian purchaser, clearance requirements, P dual-residents, general, 363 Partner, see also Partnership, Partnership agreement insured non-resident, 206 death of corporate partner, 378 insurer non-resident, 206 death of individual partner, inter vivos gift or non-arm s length liability, 374 transfer, 367 proceeds of life insurance policies non-resident purchaser, 367 and non-resident spouses, corporate partners, tax treaties, 368 individual partners, 379 taxable dispositions, 364 retirement, withholding tax/section 116, funding the withdrawal of, Notice of Ways and Means Motion transferring life insurance policy to and Bill C-139, 7 16 partner, old rules (grandfathered policies) transferring life insurance policy to pre-1982 (G1 policies) partnership, 383 effect of changes to, Partnership, see also Partner, life insurance capital dividend Partnership agreement account, agreement, see Partnership tax rules, agreement 754

23 Partnership (cont d) creditor protection, 401 annuities funding buy/outs with life reporting requirements, 440 insurance defined, 373 choosing structure for, 386 financial statements, 224 criss-cross method, general, basic, 387 general taxation of, basic with corporate partners, death of individual partner, beneficiary designation, 390 death of sole shareholder of trustee d, corporate partner, 378 general, 386 income, 375 partnership purchase of interest, partner retirement, partnership interest, 376 corporate partners, year-end, individual partners, income, 375 splitting the premium, 395 insurance needs, surviving partners purchase collateral insurance, interest, funding partnership agreement, general, 375 see Partnership agreement interest deductibility, key partner coverage, partnership retirement obligations, personal insurance, liability, 374 leveraged life insurance, limited liability partnership (LLP), 374 magnitude of obligation, 397 proceeds of life insurance policies pay-as-you-go, 398 and, sinking fund, 398 individual partners, 379 with life insurance, 398 corporate partners, general, transferring policy to partner, Personal injury defined, transferring policy to partnership, 383 Plaintiff unlimited liability, 374 taxation of, year-end, 375 Policy Partnership agreement, see also Partner, Partnership funding 755 exempt, 7, 8 10, 18 interest in adjusted cost base

24 Policy (cont d) defined, 5 defined, 4, 6 group life insurance, Policy dividend, 97, , 220 level premium calculation, 33 38, non-residents clearance requirements, level premium system, see Level premium system Policy gains loan, 66 deferred annuity, 463 paid by corporation on personally- disposition of interest, 76 owned insurance, 213 non-residents, 368 partnership buyouts transfer of ownership, criss-cross method, Policy loan, 5, 71, 81, 83, 84, basic, 387 Policyholder basic with corporate partners, 388 borrowing against policy, 137 beneficiary designated, 390 taxation of, 1 2 Carter Commission, 2 trustee d, splitting premium, 395 Premiums prescribed, calculation of, reserve calculation, deductibility of split-dollar insurance arrangements charitable gift, 217 general, 295 collateral insurance premium split based on cash generally, value, historical perspective, premium split based on term Interpretation Bulletin IT- insurance, R2, Premiums payable under a life related matters, insurance policy s. 20(1)(e.2), defined, 84 amount deductible, Prescribed annuity contracts requirements for (PACs), 25, , 434, 440, deductibility, creditor s life insurance, 223 Pricing employee benefits, 216 elements of premium calculations generally, expenses, group life insurance, general, 33 registered life insurance policy, 216 investment income, Registered Retirement Savings lapse, 35 Plans (RRSPs), 216 mortality,

25 Pricing (cont d) Promissory note wellness and lifestyle, 34 disposition of shares under, impact of assumptions, Property level premium calculation, capital property permanent policies, deemed disposition of, taxes, and, depreciable, 176 Private corporation emigration, business loan protection strategy, trusts 228 life insurance, 326 capital dividend account, , deemed disposition, see Disposition keyperson insurance strategy and, property subject to emigration tax, life insurance proceeds received by, segregated funds, taxable Canadian property, 361 tax integration, 197 trust property, 315 tax planning, 2017 proposed United States situs assets, 178, 346 measures, income converted to capital gains, Provincial premium and sales taxes, income sprinkling, Q passive investment portfolio, Qualified farm or fishing property, 176 Probate fees, Qualified small business corporation gifts of life insurance, , 420 shares, 114, 176, 269 mutual funds, 517 Quebec personally-owned insured annuities, 479 beneficiaries, 176, 178 segregated funds, 517 Civil Code testamentary insurance trusts and, collateral assignment 330 (hypothecation), 204 Proceeds of disposition trust provisions, 316, 327, 331 adjusted cost base, R in excess of, 3 4 Registered Retirement Income annuity contracts, 428, 442, 447 Funds (RRIFs), 176, 177, 181, 275, defined, , 354, 361, 407, 408, 420, 423, dividends, , 516, 522 policy dividends, 97 RRIF insurance,

26 Registered Retirement Savings Plans retirement compensation (RRSPs), 176, 177, 180, 181, 182, arrangements, , 280, , 354, 361, 407, Restricted financial institution 408, 420, 423, 430, 432, 439, 441, 443, 457, 516, 522 defined, 219 IT-408R, 216, 343 Retirement compensation owning life insurance policy, arrangements (RCA), see also Supplementary executive retirement plan (SERP) RRSP insurance, 216 accounting for RCA funded by life segregated funds, 430, 432, 516 insurance, 294 trusts and life insurance, anti-avoidance rules, 274 Regulations, audit initiative by CRA, , 502 deductibility 230, 520 employer contributions, , 21, 25, 433, 441, 442, 457, 475 prohibited investment, 275, , 450, 451, 452, 457 qualifying employee 304, 13, 180, 341, 432, 434, 441, contributions, , 446, 447, 474, 479, 482, 483 shareholder contributions, , 13, 456 deeming rules, , 8, 9, 21, 22, 25, 26, 81, 502 defined, , 7, 8, 21, 22, 85, 92, 441, 449 front end leveraged RCA 308, 10, 21, 24, 25, 26, 27, 84, 85, (FELRCA), , 450 general, , 11, 12, 13, 455 introduction, , 20, 21, 22, 23, 26, 441 PACs, , 509 salary deferral arrangements (SDA), 1401, 7, 21, 22, 23, 24, 25, 27, 36, , 86, 92, 441 SERP, , 210, 211 split-dollar insurance arrangements, 3702, , 343 taxation of, Reports winding up, annuities Rollover reporting requirements, children, deferred annuities, 462 common-law partner, 186 financial statements deferred annuity, 463 corporations, 225 grandchildren, partnerships, 225 intergenerational transfers,

27 Rollover (cont d) interest deductibility, 435, 522 RRIFs, 177 introduction of, RRSPs, 177 investment management fees, 521 spousal rollover, , 177 maturity, deferred annuity, 463 mutual funds and, , partnership property, share redemption structures, non-resident insurer, non-resident purchaser, 522 survivor spouse, 177 property of, 437 tax-free, 94 registered investments, as, 522 trust property residency, life insurance, securities, as, 434 surrender, S taxation of Segregated funds, see also Annuities general, acquisition fees, 521 income earned in fund, adjusted cost base, , annuities, present, capital gains/losses, time-weighted units, 517 charitable donations of, 411 defined, 517 deemed disposition, 520 T5 Supplementary form, 435 deemed inter vivos trust, 436 transfers in and out of fund, 436 defined, 428, , 516 withholding taxes and, disposition of interest in, Shareholders dividend tax credit, 437 agreement, 232 double taxation, potential for, 520 benefits, 213 flow-through treatment, 436 beneficiary designation on fund on fund investments, corporate-owned life insurance, general, 1, 69, living buyouts, Guaranteed Investment Funds premiums paid by corporation, (GIFs), guarantee top-up payments, transfer of ownership of guarantee withdrawal benefits, corporate-owned insurance, held by corporations, business insurance trusts, history, buy/sell agreements, see Buy/sell hybrid allocation method, 524 arrangements 759

28 Shareholders (cont d) share redemption agreement, deductibility , 254 retirement compensation stop-loss rules, see Stop-loss rules arrangements, contributions to, valuation of, Specified insurance benefit leveraged insurance to pay bonus to, defined, sole shareholders, death of, 378 Split-dollar insurance arrangements, split-dollar insurance arrangement, see Split-dollar insurance adjusted cost basis, arrangements agreements, 312 transfer of policies, alternative to, corporation to shareholder, buy/sell arrangements, charitable gift, as, , 405 related corporations, defined, 295 shareholder to corporation, executive benefits, family situations, 311 Shares financing policy deposits buy/sell agreements, see Buy/sell general, 300 arrangements premium split based on cash capital gains exemption, value, premium split based on term charitable donations of, 411 insurance, 300 deemed disposition upon death, generally, holding company, 311 corporate-owned life insurance on deceased shareholder, related keyperson insurance, parties and other shareholders, premium allocation general, 300 life insurance shares, premium split based on cash disposition of value, premium split based on term under promissory note, insurance, 300 gifts retirement compensation private company shares, 412 arrangements, 310 grandfathered situations using arrangements stop-loss rules, 257 buy/sell arrangements, 310 held by spousal trust, charitable giving, qualified small business corporation executive benefits, 309 shares, 176 family situations,

29 Split-dollar insurance Spouse arrangements (cont d) annuity contracts holding company, 311 rollover, 449 keyperson insurance, transfer, 449 retirement compensation deferred annuity arrangements, 310 rollover, 463 Supplementary Employment Retirement Plan transfer to, 463 inter vivos transfers, 103 split-dollar life insured SERP strategy, share redemption strategies tax treatment rollover, 260 assessing benefit, spousal attribution rules, 103 characterizing taxable benefit, 305 tax-free rollovers, 99 deductibility of benefit, Stop-loss rules, employee vs. shareholder, application, buy/sell agreements general, 301 hybrid method, 233, quantifying the benefit, share redemption method, transfers, types grandfathering rules, corporate-owned death benefit, planning, fifty-percent solution, employee/shareholder owned spousal rollover, use of, death benefit, share redemption agreements, general, uses, 295 summary, 262 Split receipting arrangements Structured settlements further clarifications, advantages of, general rules, annuity qualifying as, 505 Technical News No. 26, assignment of, 510 benefits to payor, 513 Spousal trusts, casualty insurer, taxation of, 505, insurance policy, rollover, 181, defined, 505 share redemption strategies, 245 disadvantages, shares held by, discount method, 513 United States estate tax discount rate, 513 tax credit relief, 356 financial reporting,

30 Structured settlements (cont d) non-residents general, 505 clearance requirements, 364 inflation and, 513 partial surrender, 91 93, 464 lump sum payments and, 506, 508 segregated funds, 519, 521, 523 owner, taxation of, plaintiff, taxation of, T practical application, Tax integration recipient, taxation of, defined, 197 reserve, Tax shelter donation arrangements, social benefit, social policy, Tax shelter rules, technical requirements, Tax Relief Reconciliation Act, 2001, Succession plan, Succession planning, see Family Taxable Canadian property business succession planning defined, 361 Supplementary executive retirement disposition, 361 plan (SERP), Taxable conversion benefit defined, 273 defined, 70 funded, 273 Technical News generally, 273 No. 12, 655 investment options, Term insurance, 39, life insurance strategies conversion features, front end leveraged RCA (FELRCA), attained age conversion, 48 leveraged life insured SERP original age conversion, 48 strategy, enhancements life insured SERP strategy, one year term to insure cash value, 53 split-dollar life insured SERP options, 54 strategy, premium offset, 54 unfunded, 273 forms of, 49 Surrender of policy annual renewable term, 49 annuity contracts, 428, 430, 448, 10- and 20-year renewable term 464 insurance, 49 deferred annuity, 463 level term insurance, 49 defined, 90 general attributes, 47 full surrender, gifts to charities,

31 Term insurance (cont d) Crummey trust, 353 group term insurance, 406 defined, joint coverages, generally, 315 joint first-to-die, 49 income splitting tax rules, joint last-to-die, 48, 334 attribution, 324 split-dollar insurance arrangements tax on split income (TOSI), NCPI, premium split, 300 insurance proceeds received by, , 316 term-to-100, inter vivos family trusts, 186 Traditional whole life, inter vivos trusts, 342 credit options, investments, 316 accumulate at interest, irrevocable life insurance trusts cash, 52 (ILIT), 344 premium offset, joint partner trusts, 328, purchase paid-up additions, 53 life insurance and, reduce premiums, 52 alter ego trusts, term insurance enhancements, attribution planning, avoidance of 21-year rule, enhancement options, one-year term to insure cash business insurance trusts, value, change of trustee, coverage options, 55 joint partner trusts, 328 Trusts RRSPs, year deemed disposition rule, retirement compensation arrangements, 337 Crummey trust, 353 spousal trusts, alter ego trust, 326, 328, 338, testamentary insurance trusts, , attribution planning, 330 United States estate tax and, 337 beneficiaries, see Beneficiaries mutual fund trust, 428, 517, 519 business insurance trusts, property, buy/sell agreements, Quebec provisions, 173, 316, 327, 331 capital property registered retirement savings plans life insurance as, (RRSPs), see Registered Retirement cash value life insurance policy, Savings Plans (RRSPs) 318, 320 retirement compensation change of trustee, arrangements, 337, see also 763