12 December 2005 External T.I. 2005-0137151E5 - Life Policy Transfer to a Child

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.

Principal Issues: 1. Can ss. 148(8) apply to a transfer of a joint-last-to-die policy where the first life has died prior to the transfer?

2. Must the "child of the policyholder" referred to in paragraph 148(8)(b), be the same child of the policyholder that is referred to in paragraph 148(8)(a), for subsection 148(8) of the Act to apply to the transfer of the policy?

Position: 1. Yes
2. No

Reasons: 1. The words of the legislation.

2. The words of the legislation.

							2005-013715
XXXXXXXXXX 						Alison Campbell
(613) 957-3496
December 12, 2005

Dear XXXXXXXXXX :

Re: Interpretation of Subsection 148(8) of the Income Tax Act (the "Act")

We are writing in reply to your letter of June 16, 2005, in which you requested our views on two issues related to the interpretation of subsection 148(8) of the Act. Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an Advance Income Tax Ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following general comments.

Subsection 148(8) of the Act provides that, where certain conditions are satisfied, a policyholder may transfer a life insurance policy to another person at the adjusted cost basis of the policy rather than at the fair market value of the policy. The first condition is found in paragraph 148(8)(a), which requires that the policy be transferred to a child of the policyholder for no consideration. The second condition is that the life insured, under the policy being transferred, must be a child of the policyholder or a child of the transferee. The questions posed in your letter both deal with the interpretation of this second condition which is set out in paragraph 148(8)(b) of the Act.

You asked whether a policy that insured the lives of two persons at the time it was issued, would qualify for the tax deferred transfer under subsection 148(8), where one of the lives insured under the policy has died prior to the policy being transferred. It is our general view that the fact that there was more than one life insured under the policy when issued, will not preclude the policy from being transferred at its adjusted cost basis pursuant to subsection 148(8) of the Act, provided that at the time the policy is transferred, there is only one life insured under the policy.

You also enquired whether the "child" to whom the policy is transferred must be the same child whose life is insured under the policy. It is our general view that the words of paragraph 148(8)(b) of the Act provide that the life insured under the policy could be any child of the policyholder, or any child of the transferee. "Child" for the purposes of section 148 of the Act is defined in subsection 148(9) of the Act, and subsection 252(1) of the Act provides an extended meaning of "child" which applies for purposes of the Act.

While our comments are not binding on the CRA with respect to any particular situation, we hope that they are of assistance to you.

Yours truly,

F. Lee Workman
Manager
Charitable and Financial Institutions Sector
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Policy and Planning Branch