The federal budget for 2023 is on the minds of lobbyists and advocates, many of whom have made submissions to different government representatives and agencies, including to Chrystia Freeland, Canada’s Deputy Prime Minister and Minister of Finance. 

One national professional organization making such submissions is the Conference for Advanced Life Underwriting (CALU). The association is a persistent advocate for legislative changes where new amendments and dated legislation alike cause issues that advanced planners and their clients might be faced with, but which likely aren’t easily conveyed or explained to most local members of parliament. 

As previously reported, in making pre-budget submissions to the House of Commons Standing Committee on Finance and to the Department of Finance, CALU advocates for the government to continue supporting intergenerational business transfers when it is reconsidering changes it made to sections of Bill C-208. The changes were intended to make taxation more fair when a business is transferred to family instead of a third party – until the changes were made it was more advantageous for a business owner to sell to a third party than their own family – but the government fears the measure has gone too far and allows for even more tax avoidance. The revised sections are currently under review. 

CALU has also asked for the government to review and make changes to Registered Retirement Savings Plan (RRSP) and Registered Retirement Income Fund (RRIF) payment rules and make transparent all that goes into establishing minimum payments from these plans. Finally, it calls on the government to make dental care more widely available to Canadians without coverage, but to do so without hurting employer-sponsored plans (CALU and other associations have called on the government to introduce a tax credit so small businesses are not incentivized to drop their plans).


Behind the scenes, the membership association (CALU represents insurance and financial advisors as well as accounting, tax, legal and actuarial experts) is also working on a number of other initiatives. The organization’s president and CEO, Guy Legault, and CALU tax advisor Kevin Wark sat down with the Insurance Portal to discuss those efforts, elaborating on three of interest, particularly to business advisors and those who make use of trusts in their planning.

Capital dividend account (CDA)  

Current rules regarding the CDA are the result of an amendment introduced in the 2016 federal budget to address planning that could potentially unfairly increase a company’s CDA credit where the death benefit under a corporate policy was payable to a different corporate beneficiary.

Unfortunately, CALU says the revised CDA definition doesn’t contemplate scenarios where there is more than one corporate beneficiary and doesn’t calculate the policy’s adjusted cost base (ACB) accordingly.

Wark explains this, pointing out that the CDA credit is effectively the death benefit received, less the ACB of the policy.

“The combined CDA credit for multiple corporate beneficiaries will be lower than would be the case where there is only one corporate beneficiary, resulting in higher taxes than anticipated upon the distribution of insurance proceeds to shareholders,” CALU states in their March 2023 Summary of CALU Requests for Amendments to the Income Tax Act. “Modify the definition of CDA to ensure the proper amount is credited to a corporation’s CDA upon the receipt of life insurance death benefits by multiple corporate beneficiaries.” 

Life interest trusts 

Alter ego, joint partner and spousal trusts are used for estate planning purposes and are collectively known as life interest trusts. These are beneficial, as property can roll over into the trust without taxes and they’re not subject to the 21-year deemed disposition rule most other trusts are subject to – taxation of gains takes place in the trust on the death of the beneficiary. Wark says it can therefore make sense for the trust to own life insurance on the beneficiary to fund this bill. 

“Unfortunately, the Canada Revenue Agency’s (CRA) view is that the ownership of insurance is transferring value to someone other than the spouse, and therefore the trust does not qualify as a life interest trust,” Wark says. “This can have disastrous tax consequences. We’ve made a submission to the CRA to see if they would change their position; they have stuck to it. So we recognize now that we need to have legislative change to clarify that a life interest trust can own and fund life insurance and not taint the trust.” 

In its summary, CALU says that “these trusts are often used by small business owners to ensure appropriate provision is made for the surviving spouse while ultimately transferring shares in the business to the next generation of owners. The liquidity needs that arise on the death of a life interest beneficiary are similar to those applicable to bequests to a surviving spouse under a will, and are often best met by having life insurance on the life of one or both spouses. The CRA’s position effectively prevents the use of life insurance within a life interest trust to fund these liquidity needs.” 

Alarmingly, CALU adds that there is significant potential for taxpayers to be penalized by the position “as many professional advisors continue to be unaware of the CRA’s position.” 

Private health service plans (PHSP) 

Finally, the third effort, also being undertaken for business owners, concerns deduction limits for PHSPs. The relevant legislation has not been reviewed in a number of years and includes deduction limits that CALU says don’t reflect the reality of today’s costs.

“The PHSP limits have not been updated since they first became effective in 1998. However, based on Canada’s annual rates of inflation, it would take $1.69 today to purchase the equivalent of $1 in goods and services in 2018. In other words, the equivalent amount of health benefits (based on $1,500 in 1998) would cost $2,535 in 2023. This inflation-adjusted amount is comparable to the $2,500 limit for PHSP benefits that can be provided under an employee life and health trust (ELHT) to each key employee (including shareholders),” and their dependents, CALU’s summary states. 

“In addition, the ELHT limits do not differentiate between minor and adult family members who otherwise qualify as a beneficiary under an ELHT.” CALU is therefore asking Finance Canada to increase PHSP limits to $2,500 for both adult members and minors. They also ask that the deduction limit be indexed annually in a manner similar to annual Tax-Free Savings Account (TFSA) contribution limits with amounts rounded to the nearest multiple of $250.

“Some of our work is really reacting to the government, and some of our work is trying to be proactive to identify long-term issues and concerns for Canadians that CALU members have specific expertise and experience with, so that we can add value to the discourse on those issues,” Wark says.

“Some of this is for our clients. Some of it is very technical,” Legault points out. “It’s not the kind of thing to discuss at the grassroots level with your local MP.” That said, the organization puts a great deal of effort into the discourse, he adds, “because we believe in it both for the sake of our members and their clients and also for Canadians at large.”