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

By Donna Glasgow | Aug. 21, 2008, 7:36 p.m.

Universal Life

Comparison of the main characteristics of universal life, tax free savings accounts (TFSAS) and RRSPS
Characteristic	Universal life		TFSA	RRSP
*Main monetary elements*
Deposits	Subject 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 year		Subject 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%.	No		No
Deductibility	Payment non-deductible, unless policy was assigned as a collateral to a recognized financial institution	No		Yes
Penalty for excess deposit	In theory, yes. In practice, threshold maintained by issuing company.	1% per month		1% per month
Impact on tax credits and benefits	No	No		No
Withdrawals	Withdrawals taxable when they exceed the adjusted cost base (ACB),	No tax.		Amounts withdrawn added to income from year of withdrawal
Characteristic	Universal life	TFSA		RRSP
*Accessibility*
Age	All ages	18		Time of first salary payments
Eligible individual	Personal and corporate holder	Personal holder		Personal holder
Basic conditions	Must need insurance and meet insurability conditions	Any individual		Individual with employment or business income (dividends excluded)
*Types of investments*
Choices	Limited by contract and products offered by the issuing insurance company.	Fairly flexible		Fairly flexible
Taxable gains	No, except if tax limit exceeded	No		No
Losses deductible	No	No		No
Seizable	Yes, if beneficiary irrevocable	No		Yes 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.
*Other*
Transferability
During lifetime	Tax free to children or grandchildren	Not from living holder		Not from living holder, except in case of divorce or separation, according to particular rules.
At death	Not applicable	Yes, to spouse. Other person triggers taxes.		Yes, to spouse. Other person triggers taxes.

Characteristic	Universal life	TFSA		RRSP
Included in family assets	No	Unclear, 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	Yes	Possibly*		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