What insurance suits family business transfers with holding companies?

This year's 11th Canadian Taxation of Life Insurance has the answers

What insurance suits family business transfers with holding companies?

Manulife Individual Insurance has released the 11th edition of its popular, industry-recognized book, Canadian Taxation of Life Insurance.

“We update it every two years to reflect all the technical tax changes, and we often reflect the industry developments, too,” Florence Marino, the head of tax, retirement, and estate planning services for Manulife Individual Insurance Canada and one of the book’s co-editors, told Wealth Professional. “It’s amazing how much changes every two years.”

The resource text is popular with financial and insurance advisors, but also the accounting and legal community. Thomson Reuters publishes the 700-page book, which sells 4,000 copies per release.

Marino said Manulife launched the book in 2000 because “when we first entered the insurance business, we realized how few of our colleagues really understood the taxation of life insurance and how it could be used in the various contexts that they’re already giving their clients advice about".

“We wanted them to be able to understand how insurance would work and the various planning avenues that they were already involved in and they may not have realized, or appreciated, where life insurance could fit.”

The resource includes tax legislation developments, Canada Revenue Agency interpretations, and 

Manulife staff’s insights on where insurance can fit, how it could work, and any deficiencies.

This year, the book includes Bill C208, which sets out a framework for family business transfers involving holding companies.  Marino said, “this legislation puts family business transfers that fall within the rules on the same plane as if you sell your business to an arm’s length third party because there are some specific provisions in the act that would have prevented this similar treatment.

“Anytime there’s a business succession, life insurance is a really good tool because often, the person who’s transitioning the business has a defined tax liability on their death because the manner in which these transactions occur through holding companies gives them a deferred tax liability.

“There’s the potential for insurance to be sold in that context. But, also for the family business of the kids who are taking over in the family business, there’s key person protection because they would potentially still have a purchase price outstanding through the holding company. If they weren’t able to continue in the business, say they met an early demise, then potentially the whole deal could fall through. Ultimately, they are buying the business because they’re going to grow it and take it in a new direction, so there’s always the idea of their ultimate tax liability on death. That was a completely new piece of legislation that arose in 2021 that is reflected in the book.”

The resource has a faithful audience.

“People have come to expect this as the one place where they can always go when they have an issue that relates to insurance,” said Marino. “If they have some sort of technical question, they know it’ll be reflected in here.”