PPI Financial Group Inc., a marketer of insurance solutions, acknowledges that measures in the federal budget will affect the so-called ‘10/8’ leveraged insurance arrangements. These plans, typically used by high net-worth individuals and their corporations, involve the purchase of a life insurance policy, and the subsequent use of that policy as collateral to borrow funds for other investment purposes. Policyholders are able to deduct the interest they pay on the loan, thus generating a considerable tax benefit. Measures in the federal budget aim to prevent the arrangements from being used in the future, by making it punitive for clients to continue with the program. Specifically, the budget proposes to eliminate the deductibility of interest paid as part of a 10/8 arrangement, eliminate the deductibility of premiums paid for policies assigned in support of 10/8 loans, and restrict the credit to a corporation’s capital dividend account where these policies are corporate-owned. Clients have until the end of the year to unwind their existing 10/8s, before the tax benefits associated with the arrangements begin to be denied. PPI has begun determining the best course of action for clients with existing 10/8 arrangements.
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