Skip to main content

By: Florence Marino B.A., LL.B., TEP | Vice President, Tax & Estate Planning

On June 10, 2024, the Notice of Ways and Means Motion (“NWMM”) was tabled containing legislative details and background information was provided by the Department of Finance regarding the capital gains inclusion rate changes announced in the 2024 Federal Budget. (See: 2024 Federal budget – Reflections on the increase to the capital gains inclusion rate through an insurance lens – Tompkins Insurance ) No major surprises and few concessions were made in the NWMM. 

Since the Budget much of the focus for taxpayers and their advisors has been on the immediate decision whether (if possible) to crystallize capital gains before today to preserve a 50% inclusion rate and pre-pay tax on this basis. But what about the long term?

Tax liabilities on death

Death is a deemed disposition event for capital property held by an individual or a life interest trust.   In May, CALU made a submission that requested that if the capital gains inclusion measures were to proceed, the threshold amount of capital gains subject to a 50% inclusion rate be increased from $250,000 to $500,000 in the year of death.  CALU also asked that the estate of a deceased beneficiary of a life interest trust whose death triggers a deemed disposition for the trust, be able to share all or a portion of the threshold in the year of death with the life interest trust. 

None of these suggestions were adopted. While the NWMM allows a graduated rate estate and qualified disability trusts to enjoy the same treatment as individuals when realizing capital gains, this doesn’t help where the main disposition event is triggered in the hands of the individual on their death and can greatly exceed the $250,000 threshold.    

With the capital gains inclusion rate changes, we can expect higher capital gains tax liabilities on death to arise.  Life insurance provides the liquidity to fund these greater liabilities.

Post-mortem planning

The NWMM modifies the stop-loss rule contained at subsection 112(3.2) of the Act.  The “50% solution” is now the “33.33% solution”.  The same considerations go into optimizing the approach to post-mortem planning now, as they did before.  Recovering RDTOH, using CDA balances in the process of redemption and capital loss carry-back planning, using pipeline planning – all these scenarios have to be modeled out. 

CDA arising from life insurance (death benefit less the adjusted cost basis of the policy) can improve post-mortem planning results by injecting capital dividends into the mix.  In Ontario the effective tax rate of redemption and loss carry-back planning without insurance is at 47.74%.  Where the 33.33% solution is used the effective tax rate can be reduced to 31.83% and unused CDA arising from life insurance can be used in a continuing business by remaining shareholders.  The effective tax rate on pipeline with or without insurance is 35.69%.  The difference being where there is insurance, there can be unused CDA in either post-mortem planning strategy that can benefit shareholders of the continuing business. 

Choice of assets

The inclusion rate change will mean CDA from the non-taxable portion of capital gains will be at lower levels than when at 50%.  This can impact the choice of assets within corporations and result in repositioning more funds within exempt life insurance that will ultimately deliver higher levels of CDA. 

Next steps

Review existing insurance and top up coverage for increased capital gains exposure.  Compare exempt life insurance to alternative investments with a view to seeing life insurance more and more as an asset class to optimize net estate values.   


This publication is protected by copyright. Tompkins Insurance is not engaged in rendering tax or legal advice. TOMPKINSights contains a general discussion of certain tax and legal developments and should not be construed as tax or legal advice.

Should you wish to discuss this or any other TOMPKINSights article, please contact