Advisor.ca | Should clients drop 10/8s?
10/8 insurance arrangements offer Canadian investors unfair tax advantages.
So says Budget 2013, which aims to level the field at tax time by cutting the benefits these policyholders are offered.
Under 10/8 arrangements, clients invested in life insurance policies with the intention of borrowing against them at a 10% interest cost. They were then guaranteed credits to their policies of approximately 8%.
The CRA considered 10/8 loans as investment-related prior to the budget, so the after-tax costs of borrowing fell to 5.5% or less. Tax deductions were determined annually, with people saving 45% of 10%, or 4.5%. This resulted in a net cost of 5.5%.
This strategy was traditionally marketed to closely held private corporations and wealthy customers.