What does my accountant need from me before the year end?

How it works

five products, one decision

The permanent and temporary contracts

1. 01Term, coverage for a fixed period and no cash value
2. 02Whole life, permanent with a guaranteed cash value
3. 03Participating whole life, which may receive dividends
4. 04Universal life, where the owner carries more of the decision
5. 05A life annuity, capital exchanged for income for life

Most of the list lives with the insurer and not in the company's own files, and an insurer answers a written request in weeks and not days. Asking in the last week of the year is what turns a routine item into a rushed one. One item that is easy to assume settled without checking is whether dividends already cover the premium, a question answered in once dividends cover the premium, is the insurance free.

Gathering the six items is a task shared between two people and not one. The company officer with signing authority requests the insurer's four documents, the annual statement, the tax cost figure, ownership and beneficiary confirmation, and the record of any advance, in a single written letter addressed to the insurer's service department. That same officer separately pulls the two records the insurer never holds, the corporate resolution authorizing whatever changed during the year and confirmation of any pledge given to a lender, from the company's own minute book and loan file.

Once both sets are collected, they go to the accountant together and not in pieces as each arrives, since the accountant is the one who has to reconcile the insurer's figures against what the company's own books show for the year, and a partial set sent early often has to be requested again once the rest arrives.

A workable timeline runs backward from the fiscal year end and not forward from whenever someone remembers. The insurer's written request goes out early in the fiscal year, the package typically comes back within a few weeks, and it sits ready in a folder so that the final push before year end is limited to whatever changed in the closing weeks, such as a late premium payment or a last minute resolution, and not the whole list at once.

What can vary

where the structure usually goes wrong

Corporate-owned life insurance

1. 01The company owns the contract and pays the premium
2. 02Premiums are generally not deductible
3. 03The advantage lies in the rate the premium was funded at
4. 04A benefit received credits the Capital Dividend Account
5. 05Ownership and beneficiary structure is where it fails

Now catch this part. What the insurer can produce, and how quickly, differs by company. Some insurers issue the tax cost figure automatically each year with the statement; others produce it only on request, and a household that assumes it will simply appear can find it missing when the accountant asks for it in March.

Corporate law also varies by province in what the minute book must show for a resolution to be considered properly authorized, so a resolution drafted from a template meant for one province can be missing a formality another province's law expects. And the contract's own wording matters for what other paperwork trails behind it: a contract with a paid up additions rider or a policy loan already outstanding generates figures that a plainer contract of the same face amount never produces at all.

The tax cost figure itself moves every year rather than staying fixed, since it is recalculated each year the contract is in force, so a figure the accountant used last year cannot simply be carried forward and reused for the current return. A company holding a contract issued decades ago can also find that figure takes longer to produce, since the insurer's calculation reaches back through every year since issue.

The cost or the catch

The item that causes trouble is the one nobody mentions: a premium paid from the wrong account, an ownership change made informally, a pledge given and forgotten. Each is cheap to explain in November and expensive to explain two years later.

The real cost of missing one of these six items rarely shows up as a fee from the insurer. It shows up as a reassessment risk sitting quietly in the company's own return, since an unreported change of ownership or an undocumented benefit can be caught well after the fact, with interest running from the original year and not from the date it was noticed.

An ownership change made without a resolution behind it is the clearest example. The insurer's file may already show the new owner because a form was signed and sent directly to the insurer, while the company's own minute book shows nothing, and an accountant working from the minute book alone will not know to ask about it unless the insurer's own confirmation is part of the package handed over.

Who this matters to most

a cost criticism has to state a period

When the cost bites, and when it eases

1. 01Acquisition is front loadedEarly years. The guaranteed schedule is low across the same years.
2. 02Charges fall against the accumulated baseMiddle years.
3. 03The contract is inexpensive to carryLater years.

A company that changed anything during the year, a new policy, a change of owner or beneficiary, a loan taken against a contract, or a pledge given to a lender, has the most riding on getting this list complete, since each of those events is exactly what a later review looks for first.

It matters least to a company holding one unchanged contract, funded the same way every year, with no loan and no pledge, since the accountant's file for that contract looks nearly identical from one year to the next and the same request answers it quickly.

A company holding several corporately owned contracts across more than one insurer sits in the middle. Nothing about the arithmetic is more complex, but the coordination is, since each insurer works to its own timeline and format, and the accountant ends up waiting on the slowest of several separate requests and not one.

What to ask in advance

the option changes how the contract behaves

Where a declared dividend can go

1. Buying additional paid-up coverage inside the contract
2. Reducing the premium payable that year
3. Accumulating on deposit with the insurer
4. Paid out in cash to the policyholder
5. Left unexamined, the default option is rarely the right one

Asking the insurer, at the start of the fiscal year and not at its close, for a timeline of what it can produce on request avoids the scramble of the final weeks. Most insurers can confirm that timeline in writing, which makes it possible to plan the request around it rather than discovering it by making one.

Ask the accountant, at the same time, exactly which of the six items are needed in which format, since an accountant preparing several corporate returns often has a standard package requested from every client, and matching that package on the first attempt avoids a second round of requests once the year end is already close.

Ask specifically about the tax cost figure if the contract is older than a few years, since this is the item most likely to take longer than the rest of the package, and requesting it separately and earlier keeps it from holding up everything else that was ready on time.

What this page will not do

This page names what to gather. It does not say which forms the company's return should carry as a result, since that depends on what actually changed during the year and on rules that sit with the Canada Revenue Agency and not with an insurance contract.

It also does not draft the corporate resolution or judge whether a particular structure suits the company, since a resolution has to match the specific wording a lawyer or the company's own accountant would use for that transaction. The accountant preparing the return owns the tax filing question, and a lawyer owns the question of whether the corporate paperwork itself is properly formed.

Nor does this page say whether a premium the company paid can be deducted, since the answer depends on the purpose of the coverage and rules under the Income Tax Act that the accountant applies to the specific facts, not on anything general written here. That one's yours to answer.