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Life Insurance Taxation
General taxation considerations
Life insurance can be owned by an individual, a trust or a corporation, and in all cases the beneficiary receives the benefit tax-free...
PPI
Apr 241 min read
Personally-owned Policies
When insurance is owned by an individual, all of the general taxation considerations apply.
PPI
Apr 231 min read
Corporately-owned policies
As with personally-owned life insurance, the General taxation considerations apply to life insurance owned by a corporation. However,...
PPI
Apr 221 min read
Fair Market Value (FMV)
The fair market value of a life insurance policy is an important term used in many tax related transactions such as policy transfers and...
PPI
Apr 191 min read
Premium deductibility
Life insurance premiums are generally not a deductible expense since they are capital in nature. However, in certain circumstances, a...
PPI
Apr 181 min read
Net cost of pure insurance (NCPI)
The NCPI was first introduced for policies acquired after December 1, 1982. The NCPI increases each year because mortality risks increase...
PPI
Apr 171 min read
Capital Dividend Account (CDA)
These are the most common components of the CDA: *Net of Capital Losses. ** Net of ACB and possible adjustments (including the adjustment...
PPI
Apr 161 min read
Exempt test
These regulations distinguish policies that are primarily insurance from those that are primarily investment-oriented. Insurance...
PPI
Apr 152 min read
2017 Tax Reform
New tax rules for life insurance policies became effective on January 1, 2017. These changes had an impact on calculations related to...
PPI
Apr 131 min read
Disposition triggers and taxation
A disposition of a life insurance policy will result in an income gain (not a capital gain) for tax purposes if the proceeds of...
PPI
Apr 121 min read
Proceeds of Disposition
The disposition of an interest in a life insurance policy can arise in a number of circumstances. The proceeds (or deemed proceeds) of...
PPI
Apr 111 min read
Policy gain on disposition
*In the case of a partial surrender, the ACB is prorated.
PPI
Apr 101 min read
Adjusted Cost Basis (ACB)
*Formula is more complex but these are the main components. The ACB is used to determine the gain when there has been a disposition of a...
PPI
Apr 91 min read
Investment Income Tax (IIT)
The IIT is a 15% tax payable by insurance companies on investment income associated with exempt policies. It represents an indirect tax...
PPI
Apr 81 min read
Alternative Minimum Tax (AMT)
The 2023 Federal Budget contained proposals to broaden the tax base for calculation of alternative minimum tax (AMT) which are now law....
PPI
Apr 71 min read
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