Changes are on the horizon…


What impact does this have for business owners?

In only approximately 6 months, new rules on Corporate Owned Life Insurance, encapsulated by new tax legislation, will be released for the Client Relationship Model – Phase 2 (CRM2). The legislation underwent royal assent in December 2014 and will come into effect on January 1, 2017.

Among many of the changes that will be contained in the new legislation, this article seeks to highlight a few such changes that will impact Corporate Owned Life Insurance Policies. Not only will these amendments impact all business owners, they will also impact individuals who have family or personal contacts who are business owners.

Insurance is but one component in your comprehensive financial plan, especially as you get nearer to retirement. This can take many forms including creating a general financial safety net for your future, obtaining Critical Illness Insurance in response to family illness, or securing Term Insurance as a way of ensuring smooth transfer of your estate and assets. Whichever way insurance coverage is structured, it helps to provide security over time and to preserve or maximize your estate planning and assets.

For the purposes of this article, let’s dive into Corporate Owned Life Insurance Policies. Corporate Insurance is a fascinating tool, underutilized by most. I have quickly become passionate about this tool since joining The McClelland Financial Group, in January 2016. It has been a true pleasure working with clients and their accounting professionals and providing educational information to them on the opportunities that are available to business owners, both large and small.

Rather than drone on like the US Election seems to these days, let’s drill it down together. Corporate Owned Life Insurance Policies offer security to key persons within a company. This results in a tax free benefit to the company and provides funding and security in the event that key business personnel pass away. These insurance plans are designed to allow the company to carry on daily operations while putting in place a plan for how they operate going forward in the event of significant changes to key business personnel.

Time and time again, corporations find themselves under-utilizing profits and earnings in a tax-effective manner. Corporate Owned Life Insurance Policies provide businesses with an important investment tool by building a financial portfolio within their permanent life insurance policies and through acquisition of non-taxable gains. This can also allow companies to insure fund policies in a tax-effective manner while also allowing companies to maximize their profits. Through a Corporate Owned Life Insurance Policy, key business personnel are able to access funds held within their investment portfolio and use them as an additional retirement savings strategy. From an estate-planning perspective, this allows the individual’s heirs and company shareholders to use Capital Dividend Accounts as a tax-effective withdrawal solution.

Many of the changes brought about by the upcoming tax amendments will only just begin to modernize the tools and opportunities provided through Corporate Owned Life Insurance Policies. For policies placed prior to January 2017, existing strategies for transfer of wealth to shareholders and estates will be grandfathered in. Many existing features will still be available, though there will be new considerations to make once the changes come into effect. These will include the potential of having to apply for a higher benefit when reviewing policies with your Insurance Advisor.

This has only been a brief introduction into the new tax legislation with more updates to come once it has been officially introduced. Do speak with your advisor to discuss the benefits of Corporate Owned Insurance Policies at your next opportunity.

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