The Canada Revenue Agency (CRA) is warning Canadians about certain financial arrangements involving critical illness insurance that may be designed to avoid paying taxes. These arrangements often involve complex transactions, like borrowing money and using it to pay for insurance, which can mislead taxpayers and result in serious tax consequences. The CRA has previously issued warnings about similar schemes including those involving Offshore Disability Insurance Plan and Offshore Leveraged Insured Annuity
These schemes often use limited recourse loans, where the lender can only get their money back from certain assets, usually the insurance policy itself. If the borrower doesn’t pay back the loan, the lender cannot go after other assets beyond the agreed-upon as collateral.
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Information source from Canada Revenue Agency (CRA)