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.
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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