Managing Tax Liabilities

Capital gains tax in Canada not only applies to shareholders while living, but also at their death. Growth of business assets above the adjusted cost base become taxable at the capital gains rate. Over time these gains can become a significant hidden tax bill. Life Insurance plans can be designed to provide a solution.

Professional Assistance should be sought in determining the projected capital gains and the possible tax bill.

Many privately held corporations in Canada accumulate income, which becomes trapped in the corporation. If this surplus is invested and gains are obtained they become taxable at a very high rate.

Shareholders and professionals can use Universal Life or Whole Life Insurance to avoid this annual taxation and provide liquidity for creditors and tax liabilities through the insurance proceeds. Cash values can accrue tax-deferred in a wide array of investment options. Pension augmentation or leveraging strategies can be implemented in the future to benefit the shareholders or professionals.

Corporate Pension Augmentation - The advantage of tax-sheltered growth within a Universal or Whole Life plan allows corporations to structure pension augmentation for executives.

By over funding the insurance requirements the cash value will accrue tax-deferred until retirement, at which time withdrawals can be made or leveraging can be implemented.

Leveraging Strategies - Cash Values from a Universal or Whole Life plan can be assigned to a bank, which in turn provides a line of credit to use for retirement income.

The advantages to these arrangements are that cash values within the plans continue to accrue without taxation. As well, individuals can access their line of credit with out having to pay personal income tax. In corporate arrangements the income is taxable to the retired shareholder. However in both cases, if structured properly the interest paid on the line of credit may be tax deductible. Professional Assistance should always be sought prior to implementing any of these arrangements.