Life Insurance is one of the most misunderstood financial tools in the world. In very simple terms, Life Insurance is nothing more than a futures contract. It is also afforded many tax privilege’s that other investment vehicles do not have.

Those who have significant income or net worth, or perhaps own a business with an Op Co/Hold Co structure, may not be aware of the significant tax benefits of their Life Insurance policies.

With the right type of policy, you can have a substantial amount of personal or corporate investment assets grow tax deferred and you may be able to withdraw the funds tax free in the future. The death benefit is also tax free.

There is no other vehicle that can do all those things. It is not for everyone, and great care should be taken to ensure a plan like this is structured properly.

This is a common question asked by many Canadians: is there a way to deduct my mortgage payments? The answer is yes, if certain conditions are met. There are typically 2 ways to do this:

1. If as an example you have $200,000 of mortgage debt and a $200,000 investment portfolio, you can deduct your mortgage interest payments by liquidating the portfolio to pay off the mortgage, and then simultaneously borrow back to re-create the same portfolio you had prior. What this does in effect is change the loan from a mortgage on a home to money borrowed to invest or generate income. The interest on this debt is now tax deductible.
2. The second method is to utilize the Smith Maneuver™, however, this is more complex and involves leveraged investments.

Both have their merits depending upon your financial situation.

There are times when borrowed money or debts must be insured against the death of the borrower. Many financial institutions will require some form of insurance protection (Collateral Loan Insurance). In the case of Life Insurance, if certain criteria are met, the premiums paid may be tax deductible. These requirements are:

1. The lender must require the assignment of the policy as collateral for the loan.
2. The interest paid on the loan must be deductible for tax purposes, i.e. the money borrowed must be for the purpose of earning taxable income from a business or property.
3. The deduction amount may not exceed the lesser of the premiums paid or net cost of insurance.
4. Any premiums for insurance in excess of what is required for the loan are not deductible.
5. The borrower must be the policy owner.

If these conditions are not met, the premiums may not be tax deductible.

There are many business owners that have forgone retirement savings in order to reinvest in and grow their company. As you approach retirement, where will your “nest egg” come from?

An IPP may be a viable option. An IPP allows the transfer of money from an incorporated business to a private, locked in Pension Plan.

Please note: there are pros and cons of an IPP, and you should consult with your accountant or tax advisor to ensure this strategy makes sense. Please review the following link for more detailed information.

A Health Spending Account, also known as a PHSP or Private Health Services Plan, is a fantastic tax tool that allows a business to pay for and tax deduct virtually any medical or dental expense approved by CRA.  The HSA can cover a great many items a traditionally insured Health Dental plan would not cover. These plans work exceptionally well for companies of all shapes and sizes, and this is one of the programs we use for our company and staff.

Advantages of a Health Spending Account Include…

• Lower Fees – 10% of claims only
• Cost Control – what you don’t use, you don’t lose: surplus funds remain in your account
• Flexibility – covers medical or dental expenses an insurance plan would never pay for

You May Consider a Health Spending Account if…

• You are self employed and incorporated
• You are a business owner with Employee Benefits
• You have medical or dental expenses
• You have private or individual health insurance
• You would like to save taxes

Please note: there are rules and regulations to follow, and all expenses must be on CRA’s list.