3 September 1996 External T.I. 9618075 - TRANSFER OF A LIFE INSURANCE POLICY 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.

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:

Whether subsection 148(8) would apply to allow a rollover where a policyholder's interest in a life insurance policy on the life of a child of the policyholder is transferred to the child on the death of the policyholder by virtue of a successive owner designation made under subsection 199(1) of the Insurance Act (Ontario).

Position:

Yes.

Reasons:

One of the conditions in subsection 148(8) is that the policy must have been transferred to a child of the policyholder for no consideration. It is our view that a transfer of ownership resulting from a successive owner designation made under subsection 199(1) of the Insurance Act (Ontario) is a transfer for the purposes of subsection 148(8).

								5-961807
XXXXXXXXXX							J. Leigh

Attention: XXXXXXXXXX

September 3, 1996

Dear Sirs:

Re: Transfer of a Life Insurance Policy Under Subsection 148(8)

This is in reply to your facsimile of May 16, 1996 requesting confirmation that subsection 148(8) of the Income Tax Act (the "Act") would apply in a situation where a policyholder's interest in a life insurance policy on the life of a child of the policyholder is transferred to the policyholder's child on the death of the policyholder by virtue of a successive owner designation made under subsection 199(1) of the Insurance Act (Ontario).

Subsection 148(8) of the Act provides that where an interest of a policyholder in a life insurance policy is transferred to a child of the policyholder for no consideration and a child of the policyholder or a child of the transferee is the person whose life is insured under the policy, the interest is deemed to have been disposed of by the policyholder for proceeds of disposition equal to the adjusted cost basis to the policyholder of the interest immediately before the transfer and to have been acquired by the child at a cost equal to that amount.

In your facsimile, you referred to an opinion we gave on February 15, 1995 which dealt with a transfer of a policyholder's interest in a life insurance policy to the policyholder's child pursuant to the terms of the policyholder's will. We agree that the situation you are concerned with is distinguishable from the circumstances considered in that earlier opinion since in your situation the policyholder's interest in a policy is transferred to the policyholder's child by virtue of a successive owner designation made pursuant to subsection 199(1) of the Insurance Act (Ontario).

We understand that under subsection 199(1) of the Insurance Act (Ontario), a policyholder may designate a person as the successive owner of an interest in a life insurance policy in the event of death. The designation must be made in the insurance policy contract or in an agreement in writing between the policyholder and the insurer. The effect of this designation is that the policyholder's interest in the policy does not form part of the policyholder's estate on his or her death. Furthermore, the designated person has all the rights and interests of the policyholder and that person is deemed to be the insured under the policy.

It is our view that a transfer of an interest in a life insurance policy from a policyholder to the policyholder's child on the death of the policyholder by virtue of a successive owner designation made under subsection 199(1) of the Insurance Act (Ontario) is a transfer from the policyholder to the policyholder's child as required by paragraph 148(8)(a) of the Act. Accordingly, subsection 148(8) of the Act would apply in such a situation if the other requirements of that subsection are met.

While we hope that our comments are of assistance to you, they do not constitute an advance income tax ruling and therefore are not binding on the Department in respect of a specific situation.

Yours truly,

Chief
Financial Institutions Section
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch