(January 26, 2021, 12:42 PM EST) — In part one, we
discussed paragraph 20(1)(e.2) in the Income Tax Act (the Act),
which allows an individual or business to deduct the reasonable
cost of life insurance in the event it is used as collateral in a
business financing agreement. We also discussed when this provision
would be useful.
In part two, we examine why the provision may be overlooked and
what makes it technical.
Why would paragraph 20(1)(e.2) be missed?
An opportunity to appropriately deduct the cost of life
insurance or premiums of a policy assigned to a lender could be
missed for two reasons. The first reason is that life insurance is
personal in nature. Income deductions, according to the Act, can
only be made when tied to the income earning process related to a
business or property.
