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This memorandum offers a simplified, plain-English version of our comprehensive statutory technical analysis regarding the exposure of Immediate Financing Arrangements (IFAs) to tax shelter status. It breaks down the rules of the Income Tax Act (ITA) to demonstrate why standard IFA sales illustrations are susceptible to meeting this statutory definition. For compliance purposes and complete statutory references, readers should refer directly to the full technical analysis. Please visit this link or download a PDF version at tax-shelter.ca/memo.
What is an Immediate Financing Arrangement (IFA)?
An IFA is a leveraged financial strategy marketed primarily to affluent business owners and incorporated professionals. In a typical IFA, a corporation purchases a permanent life insurance policy. Instead of tying up their operating capital to pay the premiums, the business pays the premium and immediately borrows a portion (or all) of that premium amount back from a bank, using the policy as collateral.
These borrowed funds are then reinvested into an income-producing investment. Critically, the bank loan is designed to remain outstanding for the insured’s entire life. The business owner is not expected to repay the principal while alive; instead, the accumulated debt is ultimately settled using the tax-free death benefit when the insured dies, with the net remainder going to their estate.
The promoter’s pitch is appealing: the business owner keeps their capital fully invested, secures a life insurance policy with effectively a $0 net out-of-pocket cash flow, writes off the lifetime bank loan interest as a tax deduction, and uses the eventual death benefit to clear the outstanding debt.
What is a Tax Shelter and When Does it Apply?
Under the Income Tax Act (ITA), tax shelter rules apply to an arrangement where, based on statements or representations made — or proposed to be made — in connection with it, it is reasonable to conclude that the represented tax benefits within the first 4 years of acquiring an interest in a property will equal or exceed the net statutory cost of the arrangement. That “proposed to be made” language matters: the test can be engaged by marketing materials, pitch decks, or spreadsheets that a promoter has prepared to present to purchasers, even if a specific sale has not yet been finalized.
This is an objective, mathematical test, not a test of purpose or intent. The legislation does not evaluate the primary purpose of the transaction; it simply measures the results. Because this test relies entirely on what is reasonable to assume from the representations — including illustrations, pitch decks, marketing materials, or verbal sales pitches — if the represented math crosses this threshold, the promoter is required to obtain a Tax Shelter ID Number from the Canada Revenue Agency (CRA) before the arrangement is sold, issued, or funded. Subscribers must report that ID number annually on their tax returns, which lets the CRA monitor these arrangements.
A Note on Prescribed Benefits and Limited Recourse
To verify whether this test is triggered, the represented tax benefits are compared directly against the net statutory cost of the arrangement. This net cost is simple: it is the acquisition cost of the property minus any prescribed benefits. If the total tax benefits illustrated in the first four years equal or exceed this net cost, the arrangement is statutorily defined as a tax shelter.
One of the relevant prescribed benefits specified in the tax code is any limited-recourse amount in respect of the property in question. Let us break down the specifics of that terminology so we are clear that we are applying strictly statutory definitions rather than everyday commercial concepts:
Limited Recourse: A bank may consider a loan “full recourse” because it is cross-collateralized, personally guaranteed, or callable on demand. However, under the ITA, a loan is statutorily deemed limited recourse unless governed by a bona fide, written agreement at inception to fully repay the principal within 10 years. Furthermore, the tax code also anticipates rolling annual loans and considers them to be one continuous loan. In practice, IFAs rely on standardized bank lending programs that lack a 10-year principal repayment schedule, which is what mechanically qualifies the loan as a statutorily limited-recourse amount. Because the promoter is expected to be familiar with these standard lending terms, it is reasonable to conclude that their representations rely on this limited-recourse debt.
“In Respect Of”: To qualify as a prescribed benefit, this limited-recourse amount must also be “in respect of” the acquired interest in the property being tested (identified in the next section) — meaning the loan is somehow connected to the interest in the property acquired and not merely incidental. In an IFA, this connection is explicit: the represented tax deduction for the loan interest is the direct result of using those borrowed funds to acquire the qualifying income-producing interest in the property.
Note: The tax code requires that the initial acquisition cost of the property be determined before applying prescribed benefits. This prevents the limited-recourse amount from being deducted upfront and double-counted during the statutory calculation.
The Gating Question and the Statutory Formula
To properly navigate this legislation, a proper interpretation of the rules requires one to ask a gating question: what property is being tested, and are the deductions being claimed in respect of that property? Once the property is identified, the ITA applies a specific statutory formula to determine if the arrangement triggers the tax shelter definition. In simple terms, the legislation tests whether C ≥ A – B, where:
A = The acquisition cost of the property being tested.
B = Any prescribed benefits (such as limited-recourse amounts) in respect of that property.
C = The total represented tax deductions or benefits.
The net statutory cost of the arrangement is calculated as the acquisition cost minus the prescribed benefits (A – B). If the represented tax deductions (C) are greater than or equal to this net cost, the arrangement is statutorily defined as a tax shelter.
Analyzing the IFA Pitch: The Representations and Statutory Mechanics
Consider a typical IFA illustration representing a $0 cash-flow strategy. A client is proposed a life insurance policy and, starting in Year 1, they are shown a bank loan matching that exact premium amount. That loan amount is illustrated as remaining outstanding for life—meaning no principal repayment schedule is represented or illustrated in the strategy. While the loan renders the policyowner cash-neutral on the premium, they are now subject to lifetime interest on that loan.
If these borrowed funds were used directly to pay the insurance premium, the loan interest would be strictly non-deductible under the tax code, making the cost of carrying the loan over a lifetime expensive and commercially unappealing. The novelty of the IFA concept is that, by representing a deliberate sequence and use of the borrowed funds, the pitch essentially converts this otherwise non-deductible interest payment into a deductible expense, enhancing the plan’s overall value.
In order for the interest on these borrowed funds to be legitimately tax-deductible under paragraph 20(1)(c), they must be used “for the purpose of earning income from a business or property”. Therefore, the illustration dictates the following sequence:
First, the client pays the premium out of pocket, and second, borrows an equivalent amount from a bank using the policy as collateral with the expressed intention of acquiring an income-producing asset. Crucially, this means the property being tested under the tax shelter rules is not the life insurance policy itself, but rather this discrete income-producing investment asset acquired with the borrowed bank funds.
Under subsection 248(1) of the Act, “property” is defined broadly to include “a right of any kind whatever, a share or a chose in action.” By illustrating the loan interest as fully tax-deductible, the presentation explicitly represents that the borrowed funds are fully deployed to acquire a qualifying, income-producing right or asset in accordance with 20(1)(c).
The IFA Representation: A Practical Illustration
To see how these representations engage the statutory calculation, let’s walk through a generic IFA illustration (see below) where a policy is put into force with the policyholder paying a $100,000 premium in Year 1 (Col. #1) and immediately assigning the policy as collateral to a bank for a matching loan amount of $100,000.
The loan’s 5.00% interest rate generates a $5,000 first-year charge (Col. #8). This full amount is illustrated as tax-deductible, alongside a fractional premium deduction (Col. #9). Notably, the loan remains outstanding for life (Col. #5).
This is a representations question, not an accounting reconstruction. The tax-shelter definition is triggered by what is represented, not by auditing the final destination of the funds. Here is how the tax shelter analysis is applied to establish the three quantum elements (A, B, and C):
1. Acquisition Cost of the Represented Property Interest (A)
The first relevant question is what property interest is necessarily represented by the tax consequences shown in the illustration. Here, the illustration shows a $100,000 loan (Col. #4) at a 5% interest rate and simultaneously claims the full $5,000 interest expense (Col. #8) as deductible—representing that 100% of the loan proceeds generate deductible interest. Under paragraph 20(1)(c), interest is not deductible merely because money was borrowed; the funds must be deployed strictly to acquire income-producing property. Because the presentation represents that the $100,000 borrowing is used to acquire an income-producing property and models the resulting interest as fully deductible under paragraph 20(1)(c), the $100,000 borrowing is necessarily represented as being deployed to acquire that property interest. The actual tracing of the loan proceeds confirms that representation, establishing the acquisition cost of the property interest. This is A ($100,000).
2. Prescribed Benefit in Respect of the Property (B)
Under subsection 143.2(7), loans are deemed limited recourse unless issued with a written agreement requiring full principal repayment within 10 years. Standard packaged IFA pitch decks rely on lending programs that lack this 10-year repayment schedule. Because the promoter’s presentation is built on these standard terms—and the illustration visually corroborates this by showing the $100,000 loan balance (Col. #5) remaining outstanding for life—it is reasonable to conclude the represented loan constitutes a statutory limited-recourse amount for the purposes of the pitch. To qualify as a prescribed benefit under Regulation 3100(3), this amount must also be “in respect of” the acquired property. The illustration explicitly establishes this nexus by linking the full loan amount directly to the interest deduction. This deliberate connection classifies the $100,000 loan as a limited-recourse amount in respect of the property, establishing it as a prescribed benefit. This is B ($100,000).
3. Represented Tax Deductions (C)
As detailed above, the $5,000 interest deduction is illustrated as fully tax-deductible in Column #8. The schedule applies the represented marginal income tax rate to project net cash savings, while further tying the policy to the structure by deducting a fractional amount of the Net Cost of Pure Insurance (NCPI)—a portion of the premium representing the actual cost of the death benefit—as a collateral insurance deduction under paragraph 20(1)(e.2) (Col #9). Total represented tax deductions in Year 1 equal $5,175. This is C ($5,175).
The Statutory Math Test
We now have our Year 1 quantum elements:
- Cost of acquisition of an interest in a property = $100,000
- Prescribed benefit in respect of that property = $100,000
- Represented tax deductions = $5,175
The statutory math test asks whether C ≥ A – B
In our example, A – B = $0
Because $5,175, or C, is greater than $0, the tax shelter status is triggered immediately upon presentation. In fact, the moment an arrangement has a $0 Net Statutory Cost, any represented tax deduction—even $1—automatically turns it into an unregistered tax shelter under the law.
A Note on Partial Financing
The analysis does not depend on financing 100% of the insurance premium. The relevant comparison is not between the premium and the loan; it is between the acquisition cost of the property represented as having been acquired with the borrowed funds and the limited-recourse amount treated as a prescribed benefit in respect of that property.
Thus, if $70,000 is borrowed and the entire $70,000 is represented as being used to acquire an investment having an acquisition cost of $70,000, the relevant amounts are A = $70,000 and B = $70,000. Likewise, if $50,000 is borrowed and used to acquire a $50,000 investment, A = B = $50,000. In either case, A – B = $0.
The percentage of the insurance premium financed is therefore not itself determinative. What matters is whether the borrowing and the acquisition cost of the represented property are coextensive.
Distinguishing Ordinary Investment Loans from IFA Arrangements
Promoters may raise a defence, arguing that applying subsection 237.1(1) to leveraged financial planning leads to commercial absurdity, and contend that an IFA should be treated like ordinary commercial borrowing. This argument misconstrues both the statutory mechanism and the factual threshold of the Act. Standard commercial investment borrowing does not produce a tax shelter because it lacks the specific, combined representations that engage the statutory math:
- Independent Sourcing vs. Tied Execution: An ordinary investment loan features an independently selected asset, borrowing sized to general financing needs, and a bona fide repayment structure. It lacks the exact mathematical matching of loan proceeds to an unrelated expense (such as a life insurance premium).
- Absence of Standardized $0 Net Cost Representations: Standard investment loans do not rely on structured, pre-printed pitch decks displaying an integrated schedule where limited-recourse debt and tax deductions work in tandem to confirm a $0 net cost.
In an ordinary commercial loan, a business borrows money independently to fund a genuine capital need. In an IFA, however, the life insurance policy and the credit facility are not isolated transactions; they are underwritten concurrently as a single, pre-packaged system. The evidentiary link between the two is absolute: standard IFA bank term sheets explicitly list the promoter’s integrated tax illustration as a mandatory required document for credit approval. Because the lender actively underwrites the credit facility based directly on the mechanics of the tax presentation, any defence that the loan is an unbundled, independent transaction is defeated by the arrangement’s own paperwork.
The entire architecture is structured to establish a predetermined net estate position—where the future death benefit clears the accumulated lifetime debt—while funding the arrangement at a net-zero out-of-pocket cost today. To achieve this, the arrangement performs a highly specific mechanical result: it converts what would normally be a non-deductible expense into deductible investment interest under paragraph 20(1)(c).
Where Does the Policy Fit into the Tax Shelter Analysis?
Ironically, it might initially seem that the life insurance policy itself has little to do with the tax shelter calculation. However, the policy is the unique vehicle whose inherent properties trigger the limited-recourse debt trap under section 143.2.
If one tried to execute this exact $0 net-cost strategy using real estate or an operating business as collateral, it would fail. A permanent life insurance policy is a unique commercial asset: it carries a 100% mathematical certainty of paying out a fixed, tax-free sum of cash at a future date. Because the bank is guaranteed to recover its capital from that death benefit, it is willing to issue a “demand loan” designed to remain outstanding for the borrower’s entire life, without requiring a single dollar of principal repayment along the way.
Because this insurance-backed loan is engineered to stay open until death, it inherently lacks a bona fide written agreement to repay the principal within 10 years. That specific, structural omission is exactly what mechanically triggers the statutory limited-recourse classification.
Ultimately, the tax shelter classification does not arise from the mere presence of leverage or ordinary borrowing. It arises because the promoter pairs this lifelong, non-amortizing debt with a deliberate sequence designed to manufacture deductible interest—presenting a single, integrated schedule where the acquisition cost, the limited-recourse debt, and the tax deductions perfectly align to yield a $0 net statutory cost.
Industry Packaging, Branded Strategies, and Algorithmic Models
Over the past decade, these arrangements have been systematically packaged, given proprietary brand names, and promoted in near-identical formats. To market these concepts, promoters use proprietary Excel calculation workbooks explicitly designed to reproduce the exact same mathematical results: a $0 net cash-flow position, matching premium-to-loan ratios, and automated paragraph 20(1)(c) interest deductions. The reliance on standardized, branded pitch decks and pre-programmed spreadsheets suggests that these presentations represent a pre-packaged, repeatable “arrangement” under subsection 237.1(1), rather than independent “bespoke” transactions.
Conclusions and Statutory Consequences
The architecture of the tax shelter rules imposes very different statutory consequences on the subscriber, the promoter, and third parties who advise on an unregistered tax shelter, reflecting the fact that the arrangement’s mathematical design rests with the promoter:
- The Subscriber Consequence (Denial of Benefits): The subscriber does not face a specific statutory penalty for participating in an unregistered tax shelter. Instead, under subsection 237.1(6), none of the represented deductions may be claimed at all unless the prescribed form carrying the tax-shelter ID number has been filed. If the CRA applies this provision, the denial is retroactive to Day 1—allowing the CRA to reverse years of previously claimed deductions, resulting in a sudden tax liability compounded by years of accrued arrears interest. Separately, the Act also contains rules that can reduce the cost basis of the acquired interest in the property by the amount of the associated limited-recourse debt, stripping away future tax flexibility.
- The Promoter Consequence (Statutory Penalties): The promoter, by contrast, faces a distinct monetary penalty under subsection 237.1(7.4) — the greater of $500 and 25% of the consideration involved — for selling or accepting consideration on an unregistered shelter. It is difficult for a promoter to claim ignorance of the tax code when they have actively built specific tax deductions into their own insurance quantum. For the promoter, the objective math dictates the liability, regardless of intention.
- Third-Party Advisors: A separate provision, section 163.2, imposes civil penalties on third parties who make or participate in a false statement in connection with a taxpayer’s affairs. How that provision treats an independent advisor paid a standard fee, with no stake in the arrangement’s proceeds, is a fact-specific question subject to its own discovery process should one arise.
As with any technical tax position, the precise outcome depends on the exact facts and documentation of the arrangement in question. The full analysis at tax-shelter.ca sets out the applicable scope, limits, and caveats in detail and should be read in full before this framework is applied to any specific case.
Attachment Sample Illustration & Assumptions
These are the assumptions in the policy illustrations attached:
The Policy: A corporate-owned (CCPC) exempt participating Whole Life insurance policy on a 60-year-old male. The illustrated premium is $100,000 per year for 10 years, with a dividend interest scale rate of 5.35%. The applicable corporate income tax rate is 50.17%.
The Financing: A bank advances a $100,000 loan every year to exactly match the premium, resulting in a $0 out-of-pocket cash flow for the insurance. The illustrated interest rate is 5.00%.
Full IFA Illustration Data
Note: Scroll horizontally to view all columns. Net Death Benefit reflects the Total Death Benefit minus the Cumulative Outstanding Loan Balance. The Annual Deposit is immediately offset 100% by the Annual Loan Amount, resulting in $0 net capital outlay.
Annual Deposit |
Annual Loan |
Loan Balance |
Deductions |
Net Benefit
| Yr | Age | Deposit | Cash Value | Death Benefit | Annual Loan Amount | Add. Loan BOY | Outstanding Loan | Loan Security Collat. | Tax Deductible Interest | Tax Deductible Premium | Total Annual Deduction | Total Annual Savings | Net Cash Outlay | CDA Credit | Net CSV | Net Death Benefit |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1 | 60 | $100,000 | $61,091 | $1,446,039 | $100,000 | $0 | $100,000 | $38,909 | $5,000 | $175 | $5,175 | $2,596 | $2,404 | $1,348,570 | $0 | $1,346,039 |
| 2 | 61 | 100,000 | 127,089 | 1,586,368 | 100,000 | 0 | 200,000 | 72,911 | 10,000 | 486 | 10,486 | 5,261 | 4,739 | 1,392,750 | 0 | 1,386,368 |
| 3 | 62 | 100,000 | 197,740 | 1,728,112 | 100,000 | 0 | 300,000 | 102,260 | 15,000 | 896 | 15,896 | 7,975 | 7,025 | 1,439,656 | 0 | 1,428,112 |
| 4 | 63 | 100,000 | 272,084 | 1,868,904 | 100,000 | 0 | 400,000 | 127,916 | 20,000 | 1,417 | 21,417 | 10,745 | 9,255 | 1,487,067 | 0 | 1,468,904 |
| 5 | 64 | 100,000 | 349,913 | 2,008,261 | 100,000 | 0 | 500,000 | 150,087 | 25,000 | 2,060 | 27,060 | 13,576 | 11,424 | 1,534,697 | 0 | 1,508,261 |
| 6 | 65 | 100,000 | 447,235 | 2,146,651 | 100,000 | 0 | 600,000 | 152,765 | 30,000 | 2,845 | 32,845 | 16,478 | 13,522 | 1,583,264 | 0 | 1,546,651 |
| 7 | 66 | 100,000 | 554,921 | 2,284,685 | 100,000 | 0 | 700,000 | 145,079 | 35,000 | 3,790 | 38,790 | 19,461 | 15,539 | 1,633,669 | 0 | 1,584,685 |
| 8 | 67 | 100,000 | 673,270 | 2,422,740 | 100,000 | 0 | 800,000 | 126,730 | 40,000 | 4,915 | 44,915 | 22,534 | 17,466 | 1,686,609 | 0 | 1,622,740 |
| 9 | 68 | 100,000 | 802,556 | 2,561,174 | 100,000 | 0 | 900,000 | 97,444 | 45,000 | 6,243 | 51,243 | 25,709 | 19,291 | 1,742,811 | 0 | 1,661,174 |
| 10 | 69 | 100,000 | 943,038 | 2,700,334 | 100,000 | 0 | 1,000,000 | 56,962 | 50,000 | 7,789 | 57,789 | 28,993 | 21,007 | 1,803,004 | 0 | 1,700,334 |
| 11 | 70 | 0 | 995,100 | 2,666,002 | 0 | 0 | 1,000,000 | 4,900 | 50,000 | 8,874 | 58,874 | 29,537 | 20,463 | 1,792,329 | 0 | 1,666,002 |
| 12 | 71 | 0 | 1,054,681 | 2,634,855 | 0 | 0 | 1,000,000 | 0 | 50,000 | 10,053 | 60,053 | 30,128 | 19,872 | 1,787,669 | 54,681 | 1,634,855 |
| 13 | 72 | 0 | 1,121,971 | 2,606,979 | 0 | 0 | 1,000,000 | 0 | 50,000 | 11,348 | 61,348 | 30,778 | 19,222 | 1,789,376 | 121,971 | 1,606,979 |
| 14 | 73 | 0 | 1,197,165 | 2,582,453 | 0 | 0 | 1,000,000 | 0 | 50,000 | 12,739 | 62,739 | 31,476 | 18,524 | 1,797,748 | 197,165 | 1,582,453 |
| 15 | 74 | 0 | 1,280,453 | 2,561,357 | 0 | 0 | 1,000,000 | 0 | 50,000 | 14,229 | 64,229 | 32,224 | 17,776 | 1,813,096 | 280,453 | 1,561,357 |
| 16 | 75 | 0 | 1,323,698 | 2,543,051 | 0 | 0 | 1,000,000 | 0 | 50,000 | 15,829 | 65,829 | 33,027 | 16,973 | 1,835,046 | 323,698 | 1,543,051 |
| 17 | 76 | 0 | 1,368,098 | 2,526,713 | 0 | 0 | 1,000,000 | 0 | 50,000 | 16,133 | 66,133 | 33,179 | 16,821 | 1,861,446 | 368,098 | 1,526,713 |
| 18 | 77 | 0 | 1,414,037 | 2,512,257 | 0 | 0 | 1,000,000 | 0 | 50,000 | 16,226 | 66,226 | 33,225 | 16,775 | 1,892,260 | 414,037 | 1,512,257 |
| 19 | 78 | 0 | 1,461,654 | 2,499,626 | 0 | 0 | 1,000,000 | 0 | 50,000 | 16,308 | 66,308 | 33,266 | 16,734 | 1,927,447 | 461,654 | 1,499,626 |
| 20 | 79 | 0 | 1,511,107 | 2,488,774 | 0 | 0 | 1,000,000 | 0 | 50,000 | 16,379 | 66,379 | 33,302 | 16,698 | 1,966,967 | 511,107 | 1,488,774 |
| 21 | 80 | 0 | 1,562,582 | 2,479,661 | 0 | 0 | 1,000,000 | 0 | 50,000 | 16,439 | 66,439 | 33,332 | 16,668 | 2,010,751 | 562,582 | 1,479,661 |
| 22 | 81 | 0 | 1,616,301 | 2,472,255 | 0 | 0 | 1,000,000 | 0 | 50,000 | 16,488 | 66,488 | 33,357 | 16,643 | 2,058,714 | 616,301 | 1,472,255 |
| 23 | 82 | 0 | 1,672,174 | 2,466,528 | 0 | 0 | 1,000,000 | 0 | 50,000 | 16,526 | 66,526 | 33,376 | 16,624 | 2,110,737 | 672,174 | 1,466,528 |
| 24 | 83 | 0 | 1,729,676 | 2,462,467 | 0 | 0 | 1,000,000 | 0 | 50,000 | 16,554 | 66,554 | 33,390 | 16,610 | 2,166,671 | 729,676 | 1,462,467 |
| 25 | 84 | 0 | 1,788,435 | 2,460,038 | 0 | 0 | 1,000,000 | 0 | 50,000 | 16,570 | 66,570 | 33,398 | 16,602 | 2,226,288 | 788,435 | 1,460,038 |
| 26 | 85 | 0 | 1,848,331 | 2,459,189 | 0 | 0 | 1,000,000 | 0 | 50,000 | 16,576 | 66,576 | 33,401 | 16,599 | 2,289,268 | 848,331 | 1,459,189 |
| 27 | 86 | 0 | 1,909,255 | 2,459,866 | 0 | 0 | 1,000,000 | 0 | 50,000 | 16,571 | 66,571 | 33,399 | 16,601 | 2,355,202 | 909,255 | 1,459,866 |
| 28 | 87 | 0 | 1,971,085 | 2,462,024 | 0 | 0 | 1,000,000 | 0 | 50,000 | 16,557 | 66,557 | 33,391 | 16,609 | 2,423,532 | 971,085 | 1,462,024 |
| 29 | 88 | 0 | 2,033,645 | 2,465,619 | 0 | 0 | 1,000,000 | 0 | 50,000 | 16,532 | 66,532 | 33,379 | 16,621 | 2,465,619 | 1,033,645 | 1,465,619 |
| 30 | 89 | 0 | 2,096,731 | 2,470,612 | 0 | 0 | 1,000,000 | 0 | 50,000 | 16,499 | 66,499 | 33,363 | 16,637 | 2,470,612 | 1,096,731 | 1,470,612 |
| 31 | 90 | 0 | 2,159,535 | 2,476,217 | 0 | 0 | 1,000,000 | 0 | 50,000 | 16,462 | 66,462 | 33,344 | 16,656 | 2,476,217 | 1,159,535 | 1,476,217 |
| 32 | 91 | 0 | 2,229,555 | 2,530,229 | 0 | 0 | 1,000,000 | 0 | 50,000 | 0 | 50,000 | 25,085 | 24,915 | 2,530,229 | 1,229,555 | 1,530,229 |
| 33 | 92 | 0 | 2,298,778 | 2,584,179 | 0 | 0 | 1,000,000 | 0 | 50,000 | 0 | 50,000 | 25,085 | 24,915 | 2,584,179 | 1,298,778 | 1,584,179 |
| 34 | 93 | 0 | 2,368,072 | 2,638,095 | 0 | 0 | 1,000,000 | 0 | 50,000 | 0 | 50,000 | 25,085 | 24,915 | 2,638,095 | 1,368,072 | 1,638,095 |
| 35 | 94 | 0 | 2,438,237 | 2,691,999 | 0 | 0 | 1,000,000 | 0 | 50,000 | 0 | 50,000 | 25,085 | 24,915 | 2,691,999 | 1,438,237 | 1,691,999 |
| 36 | 95 | 0 | 2,509,972 | 2,745,912 | 0 | 0 | 1,000,000 | 0 | 50,000 | 0 | 50,000 | 25,085 | 24,915 | 2,745,912 | 1,509,972 | 1,745,912 |
| 37 | 96 | 0 | 2,584,750 | 2,799,844 | 0 | 0 | 1,000,000 | 0 | 50,000 | 0 | 50,000 | 25,085 | 24,915 | 2,799,844 | 1,584,750 | 1,799,844 |
| 38 | 97 | 0 | 2,665,320 | 2,853,789 | 0 | 0 | 1,000,000 | 0 | 50,000 | 0 | 50,000 | 25,085 | 24,915 | 2,853,789 | 1,665,320 | 1,853,789 |
| 39 | 98 | 0 | 2,756,593 | 2,907,715 | 0 | 0 | 1,000,000 | 0 | 50,000 | 0 | 50,000 | 25,085 | 24,915 | 2,907,715 | 1,756,593 | 1,907,715 |
| 40 | 99 | 0 | 2,867,532 | 2,961,547 | 0 | 0 | 1,000,000 | 0 | 50,000 | 0 | 50,000 | 25,085 | 24,915 | 2,961,547 | 1,867,532 | 1,961,547 |
| 41 | 100 | 0 | 3,015,145 | 3,015,145 | 0 | 0 | 1,000,000 | 0 | 50,000 | 0 | 50,000 | 25,085 | 24,915 | 3,015,145 | 2,015,145 | 2,015,145 |
David Kakon, B.Sc. (Math Hons.)
Financial security advisor
David@ArmstrongLife.com
View the complete technical analysis and statutory provisions under the Income Tax Act.
SERVICES FINANCIERS ARMSTRONG INC.
Cabinet en assurance de personnes
ARMSTRONG FINANCIAL SERVICES INC.
Firm in the insurance of persons
David E. Kakon, B.Sc. (Math Hons.)
Financial security advisor
David@ArmstrongLife.com
http://ArmstrongLife.com
Tel. (514) 574-0233
Fax. (514) 447-1804
Appendix A: The Statutory Chain
- ITA s. 143.2(7): Deems the unpaid principal of an indebtedness to be a limited-recourse amount unless there is a bona fide written arrangement, made at the time the debt arose, to repay principal and interest within a reasonable period not exceeding 10 years, together with compliant interest-payment terms.
- ITA s. 143.2(12): Extends the analysis to a series of loans or other indebtedness and repayments that, considered together, extends beyond 10 years from when the series begins.
- ITR Regulation 3100(3): Defines a prescribed benefit, for tax-shelter purposes, to include an amount that is a limited-recourse amount under s. 143.2(1), (7), or (13), subject to specified exclusions.
- ITA s. 237.1(1): Defines a tax shelter by comparing represented deductions, losses, or credits in the first four years against the net cost of the property, being its cost less any prescribed benefits.
- ITA s. 237.1(4): Requires a Tax Shelter Identification Number to be obtained before a tax shelter is sold, issued, or funded.
- ITA s. 237.1(6): Prohibits deductions or claims in respect of a tax shelter unless the prescribed form containing the tax-shelter identification number has been filed.
- ITA s. 143.2(6): Contains rules that can reduce the capital cost or expenditure amount of a tax-shelter investment by specified limited-recourse amounts.
- ITA s. 237.1(7.4) and s. 163.2: Provide for promoter penalties in respect of unregistered tax shelters and third-party civil penalties for false statements made under a culpable-conduct standard, respectively.
Table of Contents (Quick Navigation)
- What is an Immediate Financing Arrangement (IFA)?
- What is a Tax Shelter and When Does it Apply?
- A Note on Prescribed Benefits and Limited Recourse
- The Gating Question and the Statutory Formula
- Analyzing the IFA Pitch: The Representations and Statutory Mechanics
- The IFA Representation: A Practical Illustration
- The Statutory Math Test
- Distinguishing Ordinary Investment Loans from IFA Arrangements
- Where Does the Policy Fit into the Tax Shelter Analysis?
- Conclusions and Statutory Consequences
- Attachment Sample Illustration & Assumptions
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