current insurance taxation issues step toronto january 5, 2012
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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 - PowerPoint PPT PresentationTRANSCRIPT
Current Insurance Taxation Issues
STEP TorontoJanuary 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
Concern with business owner tax planning transactions
The Tax File - CALU’s Watch List
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
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
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
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
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
“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
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
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
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
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
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
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
Connecting in Ottawa
Current Insurance Taxation Issues
Thank You
STEP TorontoJanuary 5, 2012
Kevin Wark, LLB, CLU, TEP, President, CALU