AGFINANCE
THE WESTERN PRODUCER | WWW.PRODUCER.COM | MARCH 20, 2014
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LIFE INSURANCE | INVESTMENT
Life insurance can protect assets, but consider tax implications MONEY IN YOUR POCKET
GRANT DIAMOND
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any small business corporations, including farm corporations, use life insurance as a way to protect assets. Premiums for permanent insurance on an organization’s principals
aren’t deductible, so it would make sense that the proceeds are not taxable. A policy’s net proceeds, which are the payout less the adjusted cost base of the policy, go into a private corporation’s capital dividend account when it receives a payout on the death of an insured shareholder. The capital dividend account allows the corporation to move funds taxfree to Canadian resident shareholders by way of a special dividend. As a result, dividends paid from the account to Canadian shareholders are not considered to be income and aren’t taxable, while non-resident shareholders are subject to a 25 per-
cent tax. As a result, it is better to pay out taxable dividends to non-residents and save the non-taxable dividends for Canadian residents. A tax practitioner can advise on this. Paying the net proceeds of a life insurance policy to a partnership will result in a change to the adjusted cost base of each partner’s interest in the partnership. This means the partners will receive a non-taxable dividend and taxpayers will be in the same situation as if they received the dividend personally. How does this compare to what happens if the life insurance policy is paid to an individual?
In that case, the proceeds will not be taxable to either the deceased’s estate or a beneficiary if the disposition or termination of the policy resulted from the death of the policy holder. Designating a life insurance beneficiar y from a protected class results in probate tax savings and creditor protection because it specifies that the proceeds will not be part of the estate. The excess of the cash surrender value over the adjusted cost base will be treated as taxable income in the hands of the policy owner if he initiates the disposition or winding up of a life insurance policy.
Some permanent insurance policies allow policy loans to be withdrawn against the buildup of cash value in the policy. Policy loans up to the adjusted cost basis can be made without tax implications. Insurance should usually be purchased for the death benefit to cover any risk associated with the loss of the insured. Any investment in the savings portion of a life insurance policy should be compared to other investments that might be made. Grant Diamond is a tax analyst in Kelowna, B.C. with FBC, a company that specializes in farm tax. Contact: fbc@fbc.ca or 800-2651002.
FINANCE NOTES CERVUS RESULTS LAG Cervus Equipment’s net profit slipped 1.5 percent despite a 23 percent gain in revenue in 2013. Annual net profit fell to $23.3 million on revenue of $899.8 million, down from $23.6 million on revenue of $731.6 million. S a l e s w e re d r i v e n b y s t ro n g demand for agricultural equipment, thanks to a healthy grain economy and increased new equipment sales and parts revenue in the commercial and industrial segments, the company said in a news release. Revenue from the agriculture business rose 28 percent to $613.5 million. Revenue from commercial and industrial equipment business rose 23 percent to $899.8 million. Net profit attributable to shareholders from agricultural sales was $18.2 million, up 5.1 percent, while profit from commercial and industrial equipment was $4.9 million, a decline of 1.5 percent. Margins on sales in the agricultural business were off because of a larger percentage of used equipment in the mix.
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ROCKY MOUNTAIN PROFITS DIP Weaker construction equipment sales hurt annual profits at Rocky Mountain Dealerships in 2013. Net income for the year was $15.3 million, down from almost $24 million in the previous year. The shift from government stimulus spending a few years ago to deficit control today has reduced spending on government and institutional projects, which hurt demand for construction equipment. Profits from sales of agricultural equipment were also off in 2013 compared to the previous year. This was partly the result of a larger percentage of used equipment sales in the mix. Total revenue from new and used agricultural equipment sales and service was $943.9 million, up 7.9 percent. Some of the increase was because the company bought additional stores. Net income from the agriculture business was almost $24 million, down 12.1 percent. Total revenue from the construction equipment business was $63.8 million, down 30 percent, and net income was a loss of $8.7 million, more than double the loss of the previous year. Rocky Mountain Dealerships has 40 locations on the Prairies. Its key brands are Case and New Holland.
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