Current Insurance Taxation Issues STEP Toronto January 5, 2012
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Transcript of Current Insurance Taxation Issues STEP Toronto January 5, 2012
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Current Insurance Taxation Issues
STEP TorontoJanuary 5, 2012
Kevin Wark, LLB, CLU, TEP, President, CALU
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Setting the Stage in Ottawa
Majority government Lost relationships,
expertise due to departure of key people
Focus on abusive tax avoidance packages
Concern with business owner tax planning transactions
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The Tax File - CALU’s Watch List
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Does not account for recent product innovation 1998 CLHIA industry submission to Finance
recommended updates Periodic queries from Finance about submission
(main contact retired) ET Working Group – CLHIA, CALU staff/members
The Tax File - CALU’s Watch List
The Exempt Test
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Simplify and update 1998 proposals Enhance operational ease, transparency,
auditability Address Finance concerns about tax results Focus: accumulating fund/ETP, IIT impacts Proposal released to insurers for comment
Implications for product design?
The Tax File - CALU’s Watch List
The Exempt Test
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CRA/Finance concerns with CDA maximization Holdco/Opco scenarios and the ITA
◦ para. 12(1)(x), subsections15(1) and 246(1)
Adding life insurance to eligible property (sec. 85)
Corporate Owned Insurance
The Tax File - CALU’s Watch List
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Limits on “key employee” participation, benefits Deduction of employer contributions only for
those required to fund benefits in the year CRA review of IT-85R2, Health and Welfare Trusts Impact of Labow decision (appeal dismissed by
FCA Nov/11) on HWTs
Employee Life andHealth Trust
The Tax File - CALU’s Watch List
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Finance announced changes in 2011 budget Adjustments in Notice of Ways and Means Motion
introduced Oct/11 Changes to funding requirement for past service RRIF minimum requirement rules unchanged CALU submission and appearance before House
and Senate Finance Committees
Individual Pension Plans
The Tax File - CALU’s Watch List
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“Tax neutral” vehicle with contributions/income annually allocated to plan members ◦ No requirement for tax withholding or CPP/EI premiums on
contributions – used by business owners for deferral, savings ◦ Being used for income splitting with family members
Finance issued consultation paper CALU responded with submission
Employee Profit Sharing Plans
The Tax File - CALU’s Watch List
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Significant increase in RCA refundable tax balances
CRA concerns: ◦ potential that anticipated Part I tax revenues on benefit
payments may not be realized◦ loan back arrangements involving insurance – if loan is
not bona fide, CRA will include such loans in income of recipient
Retirement CompensationArrangements (RCAs)
The Tax File - CALU’s Watch List
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Bill C-13◦ extension of advantage and prohibited investment rules
from TFSAs to RRSPs and RRIFs limits ability to hold shares, units, interests of
non-arm’s length entity in owner/principal’s RRSP◦ tempering of penalties, extension of time lines◦ loss of deferral benefit
Registered RetirementSavings Plans
The Tax File - CALU’s Watch List
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Corporation purchases annuity and life insurance, assigns to financial institution for borrowing purposes
Tax benefits◦ Interest deductibility◦ NCPI deduction◦ CDA credit◦ Capital gains reduction relating to shares on death
CRA review◦ limit interest deductibility to annuity income◦ Other tax benefits appear to be acceptable
Triple Back to Backs
The Tax File - CALU’s Watch List
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Watching brief for CALU Broader tax implications CRA using investigative powers to “chill” market
vs. valid purposes Other similar situations ?
◦ Splitting corporate ownership and beneficiary for CDA enhancement
10 – 8 Programs
The Tax File - CALU’s Watch List
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Retirement income initiatives U.S. excise tax U.S. FATCA reporting Tax treatment of living benefit products CRA audit activity
The Tax File – other items
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Other
10 – 8 Programs
Triple Back to Backs
Registered RetirementSavings Plans
Retirement Compensation
Arrangements (RCAs)
Employee Profit SharingPlans
Individual Pension Plans
Employee Life andHealth Trust
Corporate OwnedInsurance
The Exempt Test
Connecting with Ottawa
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Connecting in Ottawa
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Current Insurance Taxation Issues
Thank You
STEP TorontoJanuary 5, 2012
Kevin Wark, LLB, CLU, TEP, President, CALU