Five major Canadian life companies are currently transforming themselves from ownership by their policy holders to public ownership on the stock exchange. One, the Mutual Group, now named "Clarica," has completed the process. Policy holders are being asked to choose between shares in the new company (which may not have the same name) and taking cash. The choice you make as a policy holder could save you a significant proportion of the value by proper tax strategy. Your choice is an area where your financial planner may be able to give useful advice. For my clients of Investors Group, I can e-mail you a very helpful Powerpoint presentation of the subject on request.
The four Canadian companies currently de-mutualizing have links below.
As an example, an Ontario taxpayer earning between $29,591 and $59,180 would pay about $1,406 tax if they sell $5,000 worth of shares at par, and proportionally more if the price has risen. Add to this brokerage fees of about $50. A taxpayer earning over $59,180 would pay about $1,876.
2. Taking cash
There are immediate tax consequences for those who take the non-share benefit.
The benefit will be taxed as a corporate dividend on the next tax filing, and is eligible for the dividend tax credit.
This benefit, treated as a dividend, attracts less tax than selling the shares and declaring a capital gain.
As an example, an Ontario taxpayer earning between $29,591 and $59,180 would pay about $913 tax on a cash dividend of $5,000.
A taxpayer earning over $59,180 would pay about $1,358.
A common inquiry concerning the de-mutualization is with regards to the applicable date before which an eligible policyholder would have to advise the insurance company whether they would wish the benefit in cash (taxable dividend) or in shares (capital gain upon eventual sale). Click for a quick summary of these dates.