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Current Insurance Taxation Issues STEP Toronto January 5, 2012

Current Insurance Taxation Issues STEP Toronto January 5, 2012. Kevin Wark, LLB, CLU, TEP, President, CALU. Setting the Stage in Ottawa. Majority government Lost relationships, expertise due to departure of key people. Focus on abusive tax avoidance packages

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Current Insurance Taxation Issues STEP Toronto January 5, 2012

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  1. Current Insurance Taxation Issues STEP Toronto January 5, 2012 Kevin Wark, LLB, CLU, TEP, President, CALU

  2. 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

  3. The Tax File - CALU’s Watch List

  4. The Tax File - CALU’s Watch List The Exempt Test 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

  5. The Tax File - CALU’s Watch List The Exempt Test 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?

  6. The Tax File - CALU’s Watch List Corporate Owned Insurance • 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)

  7. 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 The Tax File - CALU’s Watch List Employee Life andHealth Trust

  8. 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 The Tax File - CALU’s Watch List Individual Pension Plans

  9. “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 The Tax File - CALU’s Watch List Employee Profit Sharing Plans

  10. 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 The Tax File - CALU’s Watch List Retirement CompensationArrangements (RCAs)

  11. 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 The Tax File - CALU’s Watch List Registered RetirementSavings Plans

  12. 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 The Tax File - CALU’s Watch List Triple Back to Backs

  13. 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 The Tax File - CALU’s Watch List 10 – 8 Programs

  14. 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

  15. Connecting with Ottawa The Exempt Test Retirement CompensationArrangements (RCAs) Corporate OwnedInsurance Registered RetirementSavings Plans Employee Life andHealth Trust Triple Back to Backs 10 – 8 Programs Individual Pension Plans Other Employee Profit SharingPlans

  16. Connecting in Ottawa

  17. Current Insurance Taxation Issues Thank You STEP Toronto January 5, 2012 Kevin Wark, LLB, CLU, TEP, President, CALU

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