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Learn how guaranteed investment funds (GIFs) can help your business
May 25, 2023
Your corporate clients may not know Sun Life Guaranteed Investment Funds (GIFs) contracts owned at the corporate level offer several attractive benefits for business owners. GIFs are also known as segregated fund contracts.
Canadians want guarantees
- Two-in-three (66%) Canadians are interested in safer investment options that guarantees income. But, fewer Canadians are taking advantage of annuities (7%) or segregated funds (3%), available from insurance companies.1
Consider GIFs when selecting the appropriate portfolio investment vehicle as you work with corporate clients. A GIF is a life insurance contract that contains investments similar to those mutual funds offer. But, unlike mutual funds, GIFs offer guarantees. These guarantees can protect the value of a corporation’s investments at maturity or death.
Sun GIF Solutions is part of Sun Life Global Investments’ product suite that combines the growth potential of investment funds with the benefits of an insurance contract. Sun GIF Solutions is one product, but for many needs, combining three different series in one flexible contract. Corporations also have the flexibility to access money at any time.2
With Sun GIF Solutions, corporations can:
- Move some or all of the investments between series,3 and
- Access the remaining capital, whenever the corporation may need it.3
Series switching
Sun GIF Solutions offers three solutions to meet a corporation’s evolving needs:
1. Investment Series
Grow savings – while enjoying the benefits of protection the GIF contract can provide.
- Investment flexibility
Customize the portfolio with a level of risk that the corporate client is comfortable with. - Focus on growth
If corporations want growth-oriented investments, they can allocate up to 100% of their investment to equity funds, leaving the day-to-day investment decisions to leading global portfolio managers who work hard to build investment value. - Insurance protection
Insurance carries a 75% maturity and death benefit guarantee.
2. Estate Series
Protection – and the efficiency of payments to your business may be critical in succession planning.
- 100% death benefit guarantee
The death benefit paid will be the greater of the death benefit guarantee or the current market value. - Annual reset
Up to age 80 of the annuitant, the death benefit is reset annually if the market value is higher than the previous guaranteed amount. - Diverse, leading fund companies
Corporate clients can choose from approximately 55 funds and benefit from the investment expertise of leading global portfolio managers, with no restriction on their allocation to equity investments.
3. Income Series
Guaranteed lifetime income – with the flexibility to address all corporate planning needs.
- Income planning flexibility
Corporate clients can begin to take lifetime guaranteed income based on the annuitant’s age, commencing as early as age 50, or defer payment until a later age to grow the guaranteed income amount. - Series flexibility
To meet other investment or estate needs, corporate clients can hold assets in the other series’ within Sun GIF Solutions at the same time, and within the same GIF contract. - A diverse, income-oriented investment
The investment fund for the Income Series is Sun GIF Solutions Strategic Income, a conservative fixed income investment that provides access to public and private fixed income solutions and investment strategies typically available only to institutional investors.
The corporation has the flexibility to move from one series to another, as the corporation’s needs evolve. In certain instances, business owners can make the series switch without incurring a taxable disposition.4
They can also create a guaranteed, market-based pension plan inside the corporation, with another GIF contract, Sun Lifetime Advantage GIF. This contract offers the ability to defer guaranteed income for life until desired.
Guarantees
Whether the funds are for retirement planning or for bridging potential downturns in the business, it’s critical that business owners are able to invest as they want, while ensuring that the bulk of the business’ funds are available as needed. Sun GIF Solutions – Estate Series offers a maturity guarantee of 75% of all deposits and a death benefit guarantee of 100% of all deposits (guarantees are reduced proportionately for withdrawals). The death benefit guarantee is eligible for an automatic reset each year until age 80 of the annuitant; if the market value of the contract is higher than the current guarantee amount, the death benefit guarantee will automatically increase to equal the market value.
Tax treatment
From a corporate investor/unitholder’s perspective, there are two sources of income and capital gains/losses to consider:
- Fund level - the segregated fund must allocate income and capital gains/losses to its owners/unitholders each year; and
- Investor/unitholder level – when an investor/unitholder redeems units, whether it be a systematic withdrawal, one-time withdrawal or for fees, there will be a capital gain or loss.
The following list gives more details about tax the treatment of segregated fund allocations:
- Interest, dividends and foreign income are fully taxable.
- Only 50% of the fund’s realized capital gains are taxed. Unrealized capital gains are not taxed until realized.
- Refundable tax rates vary depending on the type of income. For instance, all income tax payable on Canadian dividend income is considered refundable tax that the corporation can ultimately recover, so long as adequate dividends are flowed through to the shareholder. The personal dividend then received can benefit from the personal dividend tax credit.
- Lower refundable tax rates apply to interest, foreign income and capital gains. These refundable taxes are recoverable so long as adequate dividends are flowed through to the shareholder.
- For corporate clients, 50% of the capital gains (the non-taxable portion) will create a credit to the corporation’s capital dividend account (CDA). Amounts posted to the CDA can then be paid to the shareholder as tax-free capital dividends. CDA tax treatment is available only for private corporations that Canadian residents control. It’s not available for public corporations or for private corporations that non-residents control.
Want to know more about the taxation of a non-registered income? Read this article: Taxation of Non-Registered Income
Investor/owner withdrawals
After a fund level income allocation item (e.g. dividend, interest, etc.) becomes taxable, it is treated as part of the corporate investor/unitholder’s after-tax money invested effectively in the segregated fund. When corporate investors/unitholders withdraw funds from their segregated fund (systematic or one time) a potential capital gain or loss will be reported from the disposition of the segregated fund units, which are the proceeds of disposition less adjusted cost base (ACB). For tax purposes, a withdrawal is treated as coming proportionately from the ACB and unrealized gains, if any.
When withdrawals by the corporation from the segregated fund are subsequently flowed out to the shareholders in the form of a corporate dividend, they will be included in the income of the shareholders.
Capital loss advantage
Unlike mutual funds, segregated funds can flow net capital losses through to the investor/owner of the segregated fund. That is, capital losses over and above those used to offset capital gains inside the fund may be used directly by the owner of the contract. The owner can apply these losses against other capital gains in the same year, or carry back such losses up to three years, or forward indefinitely. This unique feature creates additional tax planning opportunities. This segregated fund advantage ties in with the notion of investing in a greater proportion of equity-based funds due to consumer confidence in the underlying guarantees.
Adjusted Cost Base (ACB) tracking
With Sun Life GIFs, the insurance company keeps track of each unit holder’s ACB. When units are redeemed, Sun Life Financial will calculate the realized gain or loss and report this on the investor’s T3 form. As such, there is no need to spend time tracking ACB or contract an accountant to do so.
Additional considerations & Structure flexibility
Although Sun Life GIFs is an insurance contract, it won’t create a material credit to a corporation’s CDA when the annuitant/insured person dies, as it is potentially the case with a corporately owned life insurance policy. However, the contract structure ensures that proceeds flow to the desired beneficiary at the appropriate time.
For a corporately owned Sun Life GIFs contract, should the beneficiary be an individual, the death benefit would create an unintended, fully taxable benefit at that time. As such, the appropriate corporate entity needs to be chosen as the beneficiary.
Protecting wealth and privacy – with the peace of mind that comes from a strong, stable organization
You can trust Sun Life Global Investments to help corporate clients grow their wealth and enhance their tax efficiency.
Security, expertise, and solutions to fit your situation
Founded in 1865, Sun Life has helped Canadians manage and grow their assets for over 150 years. The following reasons can give you confidence that your money is safe with Sun Life, and that we have the expertise and solutions to focus on meeting your needs:
Financial strength, disciplined risk management
- International financial services provider with total assets under management of $1.326 trillion5
- One of Canada’s oldest, most trusted financial institutions, recognized for sustainability and proven, disciplined risk management, which was named one of the 2023 Global 100 Most Sustainable Corporations in the World
Investment management expertise
- Investment funds from world class global portfolio managers
- Focus is on risk management through experience, insight and innovation
Suite of products and service
- Full suite of insurance and investment products
Strong commitment to service excellence
1 Results from Ipsos polls conducted in February 2021 and March 2022.
2 Note that withdrawals will affect guarantees.
3 Some restrictions apply.
4 Moving from one series to another series will affect lifetime guaranteed income.
5 As at Dec. 31, 2022.
