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A fully-disclosed, fully-compliant and tax-efficient solution

for new Canadians caught by the abolishment of immigration trusts*

The 2014 federal budget had a nasty surprise for new Canadians; the long-established immigration trust was suddenly, and without warning, abolished. Starting January 1, 2015, the income of assets under an immigration trust will be attributable to the Canadian resident contributor; all immigration trusts will cease to be effective. This will leave many new Canadians with significant non-Canadian wealth in a difficult situation; effectively all of their worldwide assets will become taxable in Canada at our high marginal rates.

Working with Canadian actuaries and insurance professionals, we have developed a solution for new Canadians that we call “International Canadian-Compliant Private-Placement Life Insurance” (or “International C2P2 Life Insurance”). Not only does International C2P2 Life Insurance work as a substitute for an immigration trust from a Canadian tax perspective, it is also designed to:

  1. survive audit by the CRA; and
  2. be effectively immune to changes to the Income Tax Act (the Act) on an ongoing basis.

International C2P2 Life Insurance: A Solution?

“International Canadian-Compliant Private-Placement Life Insurance” is quite a mouthful. We will unpack each aspect of the structure, and illustrate why we think this product is a superior solution to the issues faced by new Canadians with significant non-Canadian situs wealth that either is in, or was anticipated to be transferred to, an immigration trust. In a nutshell, our solution is to leave (or put) the assets into a non-Canadian trust, and have the trust purchase an International C2P2 Life Insurance policy on the life of the new Canadian and/or their spouse. The result is the same as an immigration trust, and is only marginally more expensive. Moreover, it is not just a five-year solution, International C2P2 Life Insurance is a structure that will continue to work on an ongoing, long-term basis. 

Life Insurance

If a life insurance policy is an “exempt policy” under the Act, it possesses two important and desirable features:

  1. the growth in value of the assets contributed to the policy remains tax-free; and
  2. the death benefit is received tax-free in the hands of the Canadian resident beneficiaries.


An “exempt policy” is a policy that is actuarially compliant with the “MTAR” rules in the regulations to the Act. Many non-Canadian companies employ Canadian actuaries and policy development professionals to create life insurance policies that are Canadian-compliant. We offer a bespoke tax and legal opinion to ensure that the structure is truly Canadian-compliant in each client’s individual circumstances. This means that you will truly understand how and why the structure can work for you.

The structure is also effectively immune to legislative changes because it is identical to other Canadian life insurance policies. To undermine the structure, the government would have to alter the way Canadian tax law deals with life insurance in a manner that would be impracticable.


With traditional Canadian life insurance you pay cash for the policy, and may have some investment options for the assets inside the policy, but these options are pre-determined by the insurance carrier in a one-size-fits-all fashion. Also, in terms of the economic efficiency of the traditional domestic life insurance product, there are various fees and expenses, but consumers have no idea what these “loads” and fees involved in such products.  For the general public, this is not as much of an issue, and domestic policies deliver value, but are not sufficiently flexible for the needs of high-net-worth global families.

In comparison, each International C2P2 Life Insurance policy is custom-made and built to suit your particular needs and circumstances. You and your advisers can determine the content of the assets in your policy. Moreover International C2P2 Life Insurance allows the high-net-worth new Canadian to purchase life insurance at effectively institutional pricing. The fees associated with International C2P2 Life Insurance are therefore significantly lower than those associated with domestic insurance products, and the client is made fully aware of all compensation paid to any and all advisors.

International: Trust Structuring for Asset Protection & Tax Efficiency

An international asset protection trust is a powerful vehicle that can prevent a devastating loss of wealth due to lawsuits, foreign judgments, family law disputes or other unanticipated liabilities.

Asset Protection

If the International C2P2 Life Insurance is owned by a trust in a jurisdiction outside of Canada, the trust itself can form an additional barrier between creditors and the assets. Perhaps even more importantly, the insured can determine, via the terms of the trust, how the death benefit will be managed and distributed after their death. The trustees of the trust, as they are not subject to Canadian jurisdiction for legal purposes (tax is another matter), can therefore protect the assets from the creditors of not only of the deceased, but also creditors of their family.

Using a non-Canadian trust as the ownership vehicle of the policy in no way reduces the tax benefits of the policy, and in fact creates a separate taxpayer, distinct from the insured party. The trust itself would be deemed to be a Canadian taxpayer, and as a result, the trust files a tax return each year, fully reporting its (entirely non-taxable) interest in the International C2P2 Life Insurance. We call this “front door tax planning.” All elements of the structure are fully disclosed to the CRA, and a tax return is filed on behalf of the trust reporting nil (zero) income.

Funds not trapped

Depending on the trustees and their understanding of the best interests of the beneficiaries, it is also possible for the trust to borrow to be able provide tax-free returns of capital or loans to the beneficiaries during their lifetime. Since the trustees can borrow against the value of the International C2P2 Life Insurance asset, funds are not trapped in the structure while the settlor/beneficiaries are resident in Canada. Moreover, if the insured leaves Canada on a permanent basis, the International C2P2 Life Insurance product is efficient from the perspective of the Canadian so-called “exit tax”; life insurance policies are one of the exceptions to the list of assets subject to deemed disposition on departure from Canada.

Application of International C2P2 Life Insurance to a Typical Client Profile

Let’s compare International C2P2 Life Insurance with a domestic insurance policy and a taxable investment. The following assumptions are used:

  • 50 year old male individual, non-smoker, standard risk**
  • $5m one-time premium***
  • marginal effective tax rate of 48.53% in Ontario on investment income**** ; and
  • investment returns of 6% (4% for domestic policy due to loads payable)*****.

The following graph illustrates the differences between the three alternative solutions.

International Canadian Compliant Private-Placement Life Insurance vs. Alternatives ($ Million)



To be fair, domestic carriers will generally not allow one-time premiums (and after 2016 neither will the offshore insurance companies) so the domestic policy gets off to a slow start. However, this only illustrates the added flexibility of the offshore carriers and their ability to customize products to suit the client’s needs while remaining within the rules, rather than insisting on one-size-fits-all products.

In order to be Canadian-compliant life insurance, at age 85 the all policies must “endow”; meaning the cash value and death benefit will be effectively equal based on the assumed rate of growth of the assets underlying the policy. Therefore, the mathematics of Canadian-compliant life insurance policies are entirely predictable. Generally speaking, due to the cost of insurance charges, a taxable investment will outperform both the domestic policy and the International C2P2 Life Insurance product in first couple of years. But depending on the facts (age & health of the insured), the insurance policies will catch up due to faster tax-free growth. The asset value of the domestic policy, due to higher loads and initial costs, never catches up to the International C2P2 Life Insurance. For a brief period, between the ages of 80 and 85, the domestic policy’s death benefit is greater than the International C2P2 Life Insurance. This is because the International C2P2 Life Insurance policy is specifically designed to push down costs and increase total returns, particularly during the years immediately prior to vesting. However, the cash value of the International C2P2 Life Insurance product clearly outperforms both alternatives over time, and once the policy endows at age 85 the performance gap widens sharply. At this point there are no cost of insurance charges in the International C2P2 Life Insurance product (unlike the domestic product with fees to age 100) and therefore the policy’s cash values grow more rapidly on a tax-exempt basis.


Given the recent changes in Canadian tax law, wealthy new Canadians are looking for alternatives to the immigration trust. The International C2P2 Life Insurance structure results in a Canadian tax resident being the beneficiary of an international trust that owns a life insurance policy on their life. The trust then properly files a Canadian tax return each year. However, the income of the trust will be nil, resulting in no tax payable in respect of the assets under the International C2P2 Life Insurance policy by either the trust or the insured. At the same time, the trust will have a significant asset that will grow tax-free at a lower cost than a domestic Canadian life insurance policy. The funds are not “trapped” in the policy because the trust can borrow against the value of the assets on an economical basis. If the new Canadian becomes a non-resident, the structure can be efficiently unwound. International C2P2 Life Insurance offers all the benefits of traditional domestic policies as well as institutional pricing, flexibility and transparency. The International C2P2 Life Insurance product therefore fits the objectives of new Canadians wishing to remain tax compliant in Canada, without an unnecessary tax burden or unreasonable expense.

End Notes

* This document does not constitute legal advice and is information provided on an “FYI” basis. 

** No extreme sports, no rating for health issues, no health issues indicated by physical

*** One-time premium subject to actuarial approval and certification as acceptable under the policy in compliance with the MTAR Rules and exempt policy test under the Act.

**** 2014 Ontario tax rate on annual income over $514,090, rate for over $136,270 up to $514,090 is 46.41%.

***** These are assumptions, actual performance will vary. However the assumptions closely track long-term average investment returns. As the policy allows for greater investment choice, returns will be more consistent with the insured’s own investment performance as would otherwise have been the case regardless of the use of such a structure. Domestic policies have additional fees and investment management fees that will usually cost an additional 200 basis points or 2% of the returns annually.