Allie Sanchez

A bill that was passed into law in 2014 under the Conservative government to reform the taxation of life insurance policies took effect at the start of this year.

The three-year gap was prescribed to give the insurance industry and Canadian citizens time to adjust to the change, CBC News said in a report. 

Simply put, the new law will affect the amount of money that can accumulate in life insurance policies that get preferential tax treatment. It will also distinguish between protection oriented and investment oriented policies.

The law is not retroactive, unless policy holders convert to a different type of coverage.

Further, the report noted that the amount of tax paid on annuities is changing as the Canada Revenue Agency updates its rates to reflect lifespans in the country, which are growing longer. As a result, annuities purchased before the end of 2016 could earn higher after tax income compared with those acquired after the said date.

The limit for tax free savings has also dropped back to $5,500 and will remain so in 2017 after being hiked to $10,000 in 2015.