Life Insurance · Component 1: Assess the client's needs and situation (35%)
Estate, Tax at Death & Business Needs
The tax and estate costs that life insurance is used to fund, and the business uses of life insurance. Covers the deemed disposition at death and the spousal rollover, RRSPs and RRIFs at death, probate and estate liquidity, creditor protection through beneficiary designations, key person cover, buy-sell agreements, collateral insurance and the capital dividend account.
Assess the client's needs and situation·4 min read·6 sections
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Must-know for the exam
✓At death, capital property is deemed sold at fair market value immediately before death (ITA s. 70(5), current to 21 Sep 2026).
✓Property left to a resident spouse or qualifying spousal trust rolls over at cost unless the executor elects out (ITA s. 70(6), 70(6.2)).
✓Capital gains inclusion rate is one-half; the proposed two-thirds rate was cancelled (ITA s. 38(a); CRA T4037, as at 12 Oct 2026).
✓RRSP or RRIF value is income on the final return unless paid to a spouse or financially dependent child or grandchild as a refund of premiums (ITA s. 146(8.8), 146.3(6)).
✓Named-beneficiary proceeds are not part of the estate and not subject to the insured's creditors (Insurance Act (BC) s. 65(1), current to 6 Oct 2026).
✓Designating a spouse, child, grandchild or parent exempts the policy and proceeds from seizure (Insurance Act (BC) s. 65(2)).
✓Ontario Estate Administration Tax: $15 per $1,000 of estate value above $50,000 (Ontario Ministry of Finance, as at 12 Oct 2026).
✓Corporate-owned death benefit less the policy's ACB is credited to the capital dividend account and can be paid out tax-free (ITA s. 89(1), 83(2)).
✓Premiums are generally not deductible; a limited deduction applies to a policy assigned as required loan collateral (ITA s. 20(1)(e.2)).
✓Executors should get a CRA clearance certificate before distributing the estate (ITA s. 159(2)).
▸On this page · 6 sections
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Traps that cost marks
→Applying the cancelled two-thirds inclusion rate or taxing the whole gain.
→Assuming the named beneficiary, not the estate, pays the RRIF tax.
→Taxing registered money at the capital gains rate, or a capital gain in full.
→Crediting the whole death benefit to the CDA without subtracting the ACB.
→Leaving out replacement costs or counting only one year of lost profit.
→Insuring each life for the full interest in every survivor's policy, which doubles the coverage.
→Deducting the full premium on a collaterally assigned policy.
→Thinking insurance proceeds escape probate even when the estate is the beneficiary.
Why it matters on the exam
Estate and business items test whether you can turn a client's assets into a tax bill at death and then choose the coverage, owner and beneficiary that pay it. Expect calculations (deemed disposition, RRSP tax, probate, CDA credit) and scenarios about who should own and receive a policy.
Tax at death
Asset
Left to a spouse
Left to anyone else
Non-registered capital property
Rolls over at cost (s. 70(6)); tax deferred to the spouse's sale or death
Deemed sold at FMV (s. 70(5)); half the gain taxable
Principal residence
Exempt for designated years (s. 40(2)(b))
Exempt for designated years
RRSP / RRIF
Refund of premiums or successor annuitant; tax deferred
Full value income on the final return, unless a financially dependent child or grandchild
Exempt life insurance
Tax-free death benefit
Tax-free death benefit
Income Tax Act, current to 21 Sep 2026 (as at 12 Oct 2026).
Because the spousal rollover defers tax to the second death, a joint last-to-die policy often matches the tax need on a cottage or portfolio.
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