Permanent life insurance, such as Whole Life or Universal Life, has long been accepted as a tax efficient way of accumulating cash for future needs. Soon the amount of funds that can be tax sheltered within a life insurance policy will be reduced by new tax rules which take effect January 1, 2017. These changes may make 2016 the best year to buy cash value life insurance.
The changes to the tax rules regarding life insurance have resulted in an update to the “exempt test” which measures how much cash value can accumulate in a policy before it becomes subject to income tax.
Highlights of the new rules and their effect
For Cash Value Life Insurance: Read more
Estate, trust and tax planners have long favoured testamentary trusts as vehicles to pass along assets to beneficiaries or heirs. A testamentary trust is generally a trust or estate that is created the day a person dies. Commonly, these trusts are established in a testator’s will.
A significant benefit to testamentary trusts had been that income earned and retained in the trust received the same graduated rate of income tax as an individual tax payer. Unfortunately, under the terms of Bill C-43, after January 1, 2016, all income retained in the trust will now be taxed at the highest rate of tax applicable in the province in which the trust is resident.
There will be two exceptions to this new rule – The Graduated Rate Estate (GRE) and a Qualified Disability Trust (QDT). Read more
For many Canadians the majority of their wealth is held in personally owned real estate. For most this will be limited to their principal residence, however, investment in recreational and real estate investment property also forms a substantial part of some estates. Due to the nature of real estate, it is important to utilize estate planning to realize optimum gain and minimize tax implications.
Key Considerations for Real Estate Investment
- Real estate is not a qualifying investment for the purposes of the Lifetime Capital Gains Exemption.
- Leaving taxable property to a spouse through a spousal rollover in the will defers the tax until the spouse sells the property or dies.
- Apart from the principal residence, real estate often creates a need for liquidity due to capital gains, estate equalization, mortgage repayment or other considerations.
- Professional advice is often required to select the most advantageous ownership structure (i.e. personal, trust, holding company).
Tax time is almost upon us and there are some recent changes which will affect many Canadian residents. The important changes to keep in mind are as follows:
The Family Tax Cut
This is the watered down version of income splitting plan that was introduced by the Harper government in 2011. The provisions allow couples with children under the age of 18 living with them to shift income from a higher income spouse to a lower income spouse so that the combined taxes payable will be reduced. The most that can be taxed in the lower-income spouse’s hands is $50,000 resulting in a federal non-refundable tax credit which will provide maximum savings of $2,000. Read more