Highlights from our recent Update for Professionals Breakfast Seminar

There has been a great deal of interest in the tax proposals released by the Department of Finance on July 18, 2017. Various firms and organizations have presented on the impact that the three main areas, covered by draft legislation, will have on private businesses. But there has been very little information on how these proposals relate to life insurance. We wanted to share some key topics that came out of our recent Update for Professional Breakfast Seminar where we discussed the topic. We hope you can join us at our next seminar!

Brenda McEachern provided us with a thorough analysis of the government’s latest tax proposals targeting Tax Planning Using Private Corporations. Her presentation focused on the potential impact of the proposals on private corporations and their shareholders. Below are some highlights from her presentation:

  • The new Tax on Split Income (TOSI) rules will make it more difficult to pay dividends to shareholders that are not involved in the activities of a business and who have not contributed assets or assumed risks pertaining to the business.
  • The government retracted its proposed legislation that prevented the use of the lifetime capital gains exemption of family members who are minors and on any gains that accrued on property while it was held in trust. Although these proposals were retracted, the use of a shareholder’s lifetime capital gains exemption may still not be available if the TOSI rules apply in respect of that shareholder’s interest in the company.
  • The Government also retracted proposed amendments to the Income Tax Act that would have otherwise targeted certain tax transactions that involved the extraction of corporate surplus at capital gains rates versus dividend rates including the often used pipeline plan.
  • The government relaxed its initial proposals which discouraged shareholders from accumulating passive investment assets using tax deferred dollars in their corporations. Under the revised legislation, corporations will be allowed to accumulate a limited amount of passive assets using tax deferred dollars. Increased compliance and tracking costs will remain, and much uncertainty still continues surrounding the grandfathering of existing passive investments assets.
  • The proposals remain silent on corporately owned life insurance, which continues to serve as an invaluable estate planning tool and there may be a strong incentive to purchase insurance prior to the tax proposals being finalized.


Farzin Remtulla considered the tax proposals and the impact that they might have on common tax and estate planning techniques. Here are some key points that came out of the session:

  • With the initial proposals it was quite obvious in certain situations that incorporating a business for tax reasons did not make sense. With the latest updates to the proposals, this is now less obvious.
  • Estate freezes continue to serve as a valuable planning tool for capping a shareholder’s terminal capital gains tax and probate exposure and deferring tax exposure relating to the future growth of a business to the next generation. However, consideration needs to be given to how the TOSI rules might affect share redemptions and to the payment of dividends to the next generation, some of whom may not be active in the business.
  • Family trust continue to be valuable for the legal protections that they may provide.
  • Building on Brenda’s comments, corporately owned life insurance remains one of the best vehicles for transferring generational wealth. Also, if the government intends to make any changes to the taxation of life insurance in its final proposals then there is a good chance that existing policies will be grandfathered. Therefore, if you are looking to fill an insurance need and are thinking to postpone until final legislation has passed, then it might cost you.
  • IPPs and RCAs may be a great alternative to accumulating passive investment assets in a corporations and are worth revisiting.

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