Canadians want guarantees
- 87% of Canadians aged 55 and over want investments with guarantees on the principal and growth opportunities.
- But 60% don’t know this option exists with GIFs, 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’ industry-leading suite that provides 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 values.
- Insurance protection
Low-cost 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
The death benefit has nowhere to go but up. Up to age 80, 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
Many business owners hold portfolio investments at the corporate level, for various reasons. 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; 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
All income that the underlying fund in the GIFs earns during the year (except unrealized capital gains) is taxed in the year earned, regardless of whether clients take systematic withdrawals, and regardless of the amounts withdrawn. Note that there will be 2 sources of taxation: first, the GIFs must allocate all the income to policyholders each year; secondly, there will be tax consequences resulting from withdrawals by clients.
The following list gives more details about tax treatment:
- Interest, dividends and foreign income are fully taxed.
- Only half 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 and capital gains income allocated from the fund to the corporation. These refundable taxes are recoverable as dividends flow through to the shareholder.
After an income item becomes taxable, it’s treated as part of clients’ after-tax money, effectively the same as the premiums clients use to purchase the GIF, and isn’t taxed again when withdrawn. If clients take withdrawals from their fund (systematic or otherwise), part of each withdrawal will be treated as having been taken from the funds’ unrealized capital gains, if there are any, and part from the fund’s after-tax money. Once an unrealized capital gain is withdrawn, it’s treated as realized, and half the gain will have to be included in clients’ income for the year of the withdrawal.
For corporate clients, half of the capital gains (the untaxed 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.
Capital loss advantage
Unlike mutual funds, GIFs can flow net capital losses through to the owner of the contract. The corporate owner can apply these losses against other capital gains in the same year, or carry back those losses up to three years. This unique feature creates additional tax planning opportunities. The 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
Ultimately, it’s not the responsibility of the brokerage to report capital gains and losses for mutual funds; it is that of the investor. Certain transactions that contribute to an increase in ACB may be overlooked, so non-registered investors, including corporations, can end up paying additional capital gains taxes unnecessarily. 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 is 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 example:
- A corporation is a beneficiary for a portion of a Sun Life GIFs contract. The death benefit proceeds received by the corporation in turn funds a buy/sell agreement (upon death) in the case of an uninsurable shareholder.
- 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 $1.25 trillion5
- One of Canada’s oldest, most trusted financial institutions, recognized for sustainability and proven, disciplined risk management
Investment management expertise
- Investment funds from leading global portfolio managers
- Focus is on risk management through experience, insight and innovation
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- Strong commitment to service excellence