Is life insurance tax deductible in Canada?

Q:

Is life insurance tax deductible in Canada?

A:

Generally, life, health and disability insurance premiums aren’t tax-deductible for individuals or businesses in Canada. When it comes to Canada’s Income Tax Act (ITA), premium deductibility is a complicated maze of specific rules for specific situations. You are generally best to assume the answer is no until you find out whether your particular scenario fits one of the exceptions.

For example, both individual & business life insurance used as collateral for a loan may be the exception. If a business pays the premiums for their employee’s life insurance, the premiums may be deductible if they are deemed a reasonable business expense.

To complicate things even further, life insurance used for charitable giving where the charity owns the policy is not deductible but may qualify for a tax credit. But if you own the policy and the charity is the beneficiary, your estate gets tax credits. In contrast, for businesses who use life insurance for charitable giving, premiums may be deductible if the charity owns the policy.

Again, this is a very complicated question as each situation may have a different answer. For that reason, the best solution we will give you is always to talk to a tax professional about your circumstances.

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Jodie Stauffer is an experienced Certified Financial Planner® and the owner of JL Stauffer Financial Consulting Ltd. Prior to opening her firm, she spent over 20 years working in various retail banking, finance, insurance and leadership roles. Her vast experience brings a unique insider's perspective to various financial, insurance and wealth topics.

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