
Preparing for the new 2017 tax legislation
Year end deadlines and policy changes on existing life insurance policies and annuities, and impact on grandfathered status.
Note: this information was taken from a bulletin provided by Manulife, but the content (aside from some minor differences in underwriting deadlines and terminology) reflects the changes as they apply to all insurers across Canada.
On January 1, 2017, the tax rules that determine how life insurance policies and annuity contracts with prescribed taxation are taxed are changing.
Grandfathering rules
Policies issued prior to January 1, 2017 will be grandfathered under the current tax rules. Loss of grandfathering may occur if certain changes are made to the existing policies after December 31, 2016 causing them to be subject to the new tax rules.
New policies issued after December 31, 2016 will be subject to the new tax rules.
Important insurance deadlines for new business and policy changes in 2016
Deadline to submit | |
---|---|
New Business – New application with all UW requirements or final requirement | October 31, 2016 |
Inforce policies – “In good order” policy changes or final UW requirement for changes that would cause a loss of grandfathered status if done after 2016 | October 31, 2016 |
Products currently available for sale
Term insurance
For policies issued before 2017
Change made after 2016 | Will the change be permitted? | Policy subject to new tax rules? |
---|---|---|
Add rider | Yes | Yes, if there is a coverage increase/addition |
Exercise a GIO/BVP underwritten before 2017 on the base policy | Yes | No |
Exercise a GIO/BVP to a new policy | Yes | No, for the base policy Yes, for the new policy |
Conversion to a new permanent plan | Yes | Yes |
Cost type/duration switch – without medical underwriting | Yes | No |
Smoker to non-smoker change | Yes | No |
Reduction/removal of a sub-standard rating | Yes | No |
Ownership change | Yes | No |
Permanent, Whole Life, Universal Life insurance
For policies issues before 2017
Change made after 2016 | Will the change be permitted? | Policy subject to new tax rules? |
---|---|---|
Exercise a GIO/BVP underwritten before 2017 on the base policy | Yes | No |
Exercise a GIO/BVP to a new policy | Yes | No, for the base policy Yes, for the new policy |
Converting a term rider under the same policy | Yes | Yes |
Add a new Deposit Option coverage | Yes | Yes |
Increase in Deposit Option Lifetime limit with medical underwriting | Yes | Yes |
Increase in Deposit Option annual payments without medical underwriting | Yes | No |
Performance Credit/Dividend Option change – no coverage increase | Yes | No |
Performance Credit/Dividend Option change – with coverage increase | Yes | Yes |
Reduction/removal of a sub-standard rating | Yes | No |
Ownership change | Yes | No |
Smoker to non-smoker change | Yes | No |
Cost type/duration switch – without underwriting | Yes | No |
The new tax rules apply to annuities with prescribed taxation purchased after 2016
Current tax rules apply when all the following are met: | New tax rules apply when all the following are met: |
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The window is closing fast, and the price you may pay for not acting on this could be in the hundreds of thousands of dollars. Extra tax, real value taken out of the hands of your business, your retirement, your estate. Don’t wait, contact us today.