Capital Gains Tax

Using a life insurance policy can be a very effective way to fund the business tax liability that arises at death! At death, any individual who owns shares in a corporation, a partnership interest, or business assets (such as in the case of a sole proprietorship) will be deemed by CRA to have disposed of these properties.  As a result, a tax liability may arise in the form of capital gains and recaptured capital cost allowance.  If funds or other assets are not available to pay the tax liability the following two situations may arise:

  1. The shares or partnership interest may have to be sold.
  2. Business assets may have to be liquidated, possibly for a price below the fair market value.

Life insurance can provide the necessary funds needed to pay both the:

  • Tax liability that results from the capital gains.
  • Recaptured depreciation triggered by death.

Life Insurance is a particularly valuable funding vehicle if the beneficiaries want to retain the property or if the market conditions will not provide the estate with an amount equal to the fair market value of the property.  The individual could own the life insurance policy or it could be owned by the corporation or partnership and dispersed to the individual’s estate after death. For additional information on this concept and the type of life insurance policy that would suit your particular situation, please contact Health Risk Services Inc.

DISCLAIMER: Please be advised that the information on this web site is intended to present a broad variety of general information as simply and accurately for your knowledge as we possibly can.  In no event does this information form part of or apply as a legal document.  Therefore, please note that rules, conditions and industry practices discussed may be changed over time.  Please consult Health Risk Services Inc. with specific questions.

E & O Insurance applies