1. Current Insurance Taxation Issues STEP Toronto January 5, 2012 Kevin Wark, LLB, CLU, TEP, President, CALU

2. Setting the Stage in Ottawa  Majority government  Lost relationships, expertise due to departure of key people  Focus on abusive tax avoidance packages  Concern with business owner tax planning transactions

3. The Tax File - CALU’s Watch List

4.  Does not account for recent product innovation  1998 CLHIA industry submission to Finance recommended updates  Periodic queries from Finance about submission (main contact retired)  ET Working Group – CLHIA, CALU staff/members The Tax File - CALU’s Watch List The Exempt Test

5.  Simplify and update 1998 proposals  Enhance operational ease, transparency, auditability  Address Finance concerns about tax results  Focus: accumulating fund/ETP, IIT impacts  Proposal released to insurers for comment Implications for product design? The Tax File - CALU’s Watch List The Exempt Test

6.  CRA/Finance concerns with CDA maximization  Holdco/Opco scenarios and the ITA ◦ para. 12(1)(x), subsections15(1) and 246(1)  Adding life insurance to eligible property (sec. 85) Corporate Owned Insurance The Tax File - CALU’s Watch List

7.  Limits on “key employee” participation, benefits  Deduction of employer contributions only for those required to fund benefits in the year  CRA review of IT-85R2, Health and Welfare Trusts  Impact of Labow decision (appeal dismissed by FCA Nov/11) on HWTs Employee Life and Health Trust The Tax File - CALU’s Watch List

8.  Finance announced changes in 2011 budget  Adjustments in Notice of Ways and Means Motion introduced Oct/11  Changes to funding requirement for past service  RRIF minimum requirement rules unchanged  CALU submission and appearance before House and Senate Finance Committees Individual Pension Plans The Tax File - CALU’s Watch List

9.  “Tax neutral” vehicle with contributions/income annually allocated to plan members ◦ No requirement for tax withholding or CPP/EI premiums on contributions – used by business owners for deferral, savings ◦ Being used for income splitting with family members  Finance issued consultation paper  CALU responded with submission Employee Profit Sharing Plans The Tax File - CALU’s Watch List

10.  Significant increase in RCA refundable tax balances  CRA concerns: ◦ potential that anticipated Part I tax revenues on benefit payments may not be realized ◦ loan back arrangements involving insurance – if loan is not bona fide, CRA will include such loans in income of recipient Retirement Compensation Arrangements (RCAs) The Tax File - CALU’s Watch List

11.  Bill C-13 ◦ extension of advantage and prohibited investment rules from TFSAs to RRSPs and RRIFs  limits ability to hold shares, units, interests of non-arm’s length entity in owner/principal’s RRSP ◦ tempering of penalties, extension of time lines ◦ loss of deferral benefit Registered Retirement Savings Plans The Tax File - CALU’s Watch List

12.  Corporation purchases annuity and life insurance, assigns to financial institution for borrowing purposes  Tax benefits ◦ Interest deductibility ◦ NCPI deduction ◦ CDA credit ◦ Capital gains reduction relating to shares on death  CRA review ◦ limit interest deductibility to annuity income ◦ Other tax benefits appear to be acceptable Triple Back to Backs The Tax File - CALU’s Watch List

13.  Watching brief for CALU  Broader tax implications  CRA using investigative powers to “chill” market vs. valid purposes  Other similar situations ? ◦ Splitting corporate ownership and beneficiary for CDA enhancement 10 – 8 Programs The Tax File - CALU’s Watch List

14.  Retirement income initiatives  U.S. excise tax  U.S. FATCA reporting  Tax treatment of living benefit products  CRA audit activity The Tax File – other items

15. Other 10 – 8 Programs Triple Back to Backs Registered Retirement Savings Plans Retirement Compensation Arrangements (RCAs) Employee Profit Sharing Plans Individual Pension Plans Employee Life and Health Trust Corporate Owned Insurance The Exempt Test Connecting with Ottawa

16. Connecting in Ottawa

17. Current Insurance Taxation Issues Thank You STEP Toronto January 5, 2012 Kevin Wark, LLB, CLU, TEP, President, CALU