11 September 2000 External T.I. 2000-0033885 - LAST-TO-DIE INSURANCE POLICY

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Treatment of benefit payment made as a consequence of the first to die under a joint-last-to-die policy.

Position: Whether or not intended the better view is that such payment would be described in paragraph (j) of the definition of disposition in 148(9).

Reasons: Broad wording of provision and lack of expressed intent to exclude such payment. The position expressed in 1999-000697 cannot be sustained under the existing law.

XXXXXXXXXX 							2000-003388

Attention: XXXXXXXXXX

September 11, 2000

Dear Sir\Madam:

Re: Last-to-Die Life Insurance Policies

This is in reply to your letter of June 22, 2000 with regard to benefits payable upon the death of the first person to die under a policy that ensures two lives. The issue is whether such benefits are payable "in consequence of the death of any person whose life was insured under the policy" as provided for in paragraph (j) of the definition of "disposition" in subsection 148(9) of the Income Tax Act (the "Act").

You have requested that Rulings Directorate of the Canada and Customs Revenue Agency reconsider its previously expressed opinion that such payment would not be described in the above-noted paragraph (j) on the basis that the first life was not a life insured under the policy. In expressing this view we conceded that the words in question are very broad and could be interpreted as including the payment made as a consequence of the death of the first of the two persons named in the policy. The lack of clarity in the legislation, which is currently under review by the Department of Finance, is due to the fact that at the time it was drafted multiple life policies were not taken into consideration. Our understanding of the intent of the legislation is that the tax free income build up allowed under exempt policies is intended to be permitted to be distributed from an exempt policy on a tax free basis only on the realization of the mortality risk which would not occur as a consequence of the death of the first person to die under a joint last-to-die policy.

Apart from what we understand would be the appropriate treatment of the payment made as a result of the first person named in the policy to die we expressed the view that such person would not be insured under the policy on the basis that the insurer would not bear any mortality risk in respect of that death. We agree with you that in determining whether a life in insured for purposes of paragraph (j) of the definition of disposition in subsection 148(9) of the Act there is no express requirement that the insurer be at risk for all or a portion of the benefit payable.

Accordingly given the broad language used in paragraph (j) of the definition of disposition in subsection 148(9) of the Act and the lack of expressed legislative intent we agree that, subject to the terms of a specific policy, the relevant words could be interpreted to include the payment made as a consequence of the first to die under a joint last to die policy with the result that the payment of the benefit would not constitute the "disposition" of an interest in the policy or a "policy loan" as defined in subsection 148(9) of the Act.

Yours truly,

F. Lee Workman
Manager
Financial Institutions Team
Income Tax Rulings Directorate
Policy and Legislation Branch