A TECHNIQUE FOR DEDUCTING LIFE INSURANCE PREMIUMS!
If you think it is impossible to deduct the amount you pay for your life insurance policy from your taxes, think again! It is possible under certain conditions.
Life insurance is not usually tax deductible, but it can be when assigned as a collateral to a loan. This deduction may be partial or whole, depending on certain factors.
If you have given your life insurance policy as collateral to a loan, it would be a good idea to contact our partners, qualified financial security advisors and life insurance professionals. See if you can save on your taxes.
When it comes to life insurance or financial products, always use an expert that has complied with continuing education to provide you with the most up-to-date information. Because the world of finance and life insurance constantly changes, it is important to stay informed.
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Whether it is for a trust, an individual, or a business, in the case of a loan for the purpose of earning income for which the bank is asking for the termination of a life insurance policy as a collateral, then the premiums are tax-deductible. However, there are certain conditions that must be met. Does this apply to you?
Check the conditions stated below:
|CONDITIONS FOR YOUR PREMIUMS TO BE TAX DEDUCTIBLE|
To qualify for tax deduction, all conditions of the Canada Income Tax Act, as set out in paragraph 20 (1) (e.2) of the Act must be met. They are enumerated below :
|1. If the creditor is a bank
In paragraph 248 of the Canada Income Tax Act, it is stipulated which are considered financial institutions:
In order to qualify for the deduction, the financial institution (as per paragraph 248 of the Canada Income Tax Act) that initiated the loan must always be the owner of the loan, therefore, not to have sold or assigned it to any other party. It is important to pay attention to this criterion because when a loan is sold, the financial institution may continue to preserve the relationship with the client so that the latter may not be aware that his bank no longer has possession of the loan.
|2. If the interest on the loan is deducted
In order to deduct the interest paid on the loan in question, all the conditions listed in 20(1)c of the Canada Income Tax Act must be met.
Note that if the deduction of the interest charges is refused, the premiums will, therefore, not be tax deductible.
|3. If the insured leaves the value of his life insurance to a financial institution
In this case, the insured is always the owner of his policy. In fact, it gives only up to a certain portion (either of the debt benefit or the cash surrender value) to cover the amount of the loan.
In this way, the insured always has the right to the commuted value or the principal to be paid to the beneficiaries in the event of death.
|4. If the banking institution requires this measure
Finally, to be able to deduct your life insurance premiums from your taxes, it is not enough for your bank to have offered you the option of transferring your life insurance as a collateral. Rather, obtaining the insurance must be a condition required by the lending institution.
It would be a good idea to ask for a written certification stating that the condition of the assignment of your life insurance policy is maintained every year to be able to apply the tax deduction.
|An insurance broker can advise you on how to deduct your life insurance premiums from your taxes. Fill out our form to quickly connect with one of our insurance partners for FREE!|
If, and only if you meet all of the above requirements, you will need to determine the lower amount between:
When you have determined which of the two amounts you should use, you need to calculate what part of the loan balance is reasonable. Only this portion can be deducted.
Let us look at a more concrete example. If for the current year, the balance of your loan is $200,000 and you are covered up to $400,000 by your life insurance policy, you can deduct 50% of the cost of your clean insurance or your premium, whichever is lower.
Note that insurance benefits are not taxable, even when premiums are deductible. In the event of a corporation being a beneficiary, an amount equal to the total death benefit to which the adjusted cost base (ACB) is subtracted is credited to the Capital Dividend Account (CDA).
We cannot emphasize it enough; there is nothing as good as the advice of a professional. This is true particularly in life insurance or taxation where there are many rules and particulars. Rather than improvising your taxes, consult one of our broker partners. He will be able to establish what your real needs are and give you the appropriate advice.
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