What is the adjusted cost base (ACB) relevant for in life insurance?

The adjusted cost base (ACB) is primarily used for tax purposes, particularly in the context of life insurance policies. It represents the amount that is used to calculate the tax implications related to any withdrawals or gains from the policy. When a policyholder withdraws funds from their life insurance policy or if the policy is cashed in, the ACB is crucial in determining how much of that transaction will be considered taxable income. Essentially, any gains over the ACB might be subject to taxation, making it a key figure that policyholders need to monitor for accurate tax reporting.

Understanding ACB is vital for tax planning, as it provides clarity on the financial consequences of accessing funds from a life insurance policy. It ensures that policyholders are prepared for potential tax liabilities that could arise from their policy, thereby helping in more informed financial management.