Comparison of the main characteristics of universal life, tax free savings accounts (TFSAS) and RRSPS

By Donna Glasgow | August 21 2008 07:36PM

Comparison of the main characteristics of universal life, tax free savings accounts (TFSAS) and RRSPS

CharacteristicUniversal lifeTFSARRSP
Main monetary elements
DepositsSubject to a tax test and influenced by the premium amount and by deposits in previous years (tax limit of 250% of value of accumulated funds at each year starting from end if year 10$5,000 per cumulative yearSubject to 18% limit and equivalence factor.  Maximum amount for 2008: $20,000, and for 2009: $21,000, indexed thereafter.
Spousal contribution No restriction.No restriction.Subject to limit of eligible contributions for contributing spouse.
Taxes (on premium)Yes, at rate of 2.35%.NoNo
DeductibilityPayment non-deductible, unless policy was assigned as a collateral to a recognized financial institutionNoYes
Penalty for excess depositIn theory, yes. In practice, threshold maintained by issuing company.1% per month1% per month
Impact on tax credits and benefitsNoNoNo
WithdrawalsWithdrawals taxable when they exceed the adjusted cost base (ACB),No tax.Amounts withdrawn added to income from year of withdrawal


CharacteristicUniversal lifeTFSARRSP
AgeAll ages18Time of first salary payments
Eligible individualPersonal and corporate holderPersonal holderPersonal holder
Basic conditions Must need insurance and meet insurability conditionsAny individualIndividual with employment or business income (dividends excluded)
Types of investments
ChoicesLimited by contract and products offered by the issuing insurance company.Fairly flexibleFairly flexible
Taxable gains No, except if tax limit exceededNoNo
Losses deductibleNoNoNo
SeizableYes, if beneficiary irrevocableNoYes if beneficiary irrevocable. New provisions of the Bankruptcy and Insolvency Act applicable since July 7, 2008.
Management fees Yes, depending on financial vehicles.  Periodic cost analysis recommended.
During lifetimeTax free to children or grandchildrenNot from living holderNot from living holder, except in case of divorce or separation, according to particular rules.
At deathNot applicable


Yes, to spouse. Other person triggers taxes.Yes, to spouse. Other person triggers taxes.


CharacteristicUniversal lifeTFSARRSP
Included in family assetsNoUnclear, but, in our view, not included because TFSA does not appear on the list of family assets (article 415 C.C.Q.).Yes
Collateral assignment YesPossibly*No
* According to information available at August 19, 2008.
This table must not be considered as legal advice. It is provided solely for information purposes. Needs analysis must be completed for each client, and the choice of any of the products described above must correspond with the tax, accounting and financial situation of each client.
Table: Ekitas, avocats & fiscalistes inc., August 19, 2008

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