Question

Debbie would like to invest in her son's new venture, but lacks the cash to do so. She does have a life insurance policy that has an account value of $210,000 and an ACB of $140,000. If she takes a policy loan of $90,000 what are the tax implications?

Answer 1

Taking a policy loan of $90,000 from her life insurance with an ACB of $140,000 results in no immediate tax for Debbie as the loan amount does not exceed the ACB. However, she may face taxable interest on the loan amount.

Step-by-step explanation:

If Debbie takes a policy loan of $90,000 from her cash-value life insurance policy, where the account value is $210,000 and the Adjusted Cost Base (ACB) is $140,000, she needs to understand the potential tax implications. When she withdraws funds through a policy loan, the amount above the ACB is taxable. Therefore, if the ACB is $140,000, and she takes out $90,000, there would be no immediate tax because she hasn't exceeded the ACB. However, the interest on the loan may be taxable and increase the cost of taking out the loan, depending on the terms of the policy and local tax laws.