Grant Thornton’s Tax Release entitled “New rules for life insurance” does a good job of using English to explain some proposed changes to the Income Tax Act (Canada) and the Income Tax Regulations that will affect insurance policyholders. The Release notes the following regarding policies issued after 2016:
- Policies will have less tax-exempt room and lower tax-free benefits on death.
- The new rules include grandfathering for pre-2017 policies, but certain changes will result in the loss of that grandfathering. Adding coverage to a policy (with underwriting that occurs after 2016) or converting a term policy to permanent coverage will render the policies subject to the new rules.
- A policy’s “net cost of pure insurance” (“NCPI”) will generally be lower, which reduce the amount of a death benefit that can be added to a corporation’s capital dividend account.
- A lower NCPI will also reduce the portion of a premium that can be deducted where a policy is used as collateral for a loan.
