For the first time since December 1, 1982, there are significant changes to the taxation of Life Insurance. These changes will take place as of January 1, 2017. If you are a business owner that is considering Corporately Owned Life Insurance, these changes will have a fairly significant effect on the amount of after tax income received. Fortunately, any insurance applications that are made prior to December 31, 2016 will be grandfathered under the existing rules, and not subject to the higher tax rate.
For small business owners, Corporate Owned Life Insurance is very attractive because the policy can be funded by the money inside the corporation, with a significant portion of the proceeds being paid directly to shareholders and beneficiaries tax free. These changes are being made by the CRA to address the fact that people are living longer. While Corporate owned Life Insurance is the primary focus of the increased taxation, many other policies and strategies will be affected. If you are, or have ever considered Corporate Owned Life Insurance, now would be the time to understand the options that are available to you.