Principal Issues: Individual was seeking assistance with regard to concerns they had relating to an insurance policy that was stated to be an "exempt policy".
Position: General comments on "exempt policies" were provided, and the individual was referred to OmbudService for Life and Health Insurance which was established for the purpose of resolving disagreements between policyholders and insurers
January 15, 2010
XXXXXXXXXX
Dear Colleague:
Thank you for your correspondence and the enclosure from your constituent, XXXXXXXXXX , regarding actions taken by his life insurer. Please accept my apology for this delayed response.
I note the concerns expressed by XXXXXXXXXX with respect to the financial performance and, perhaps, the terms and conditions of a particular insurance policy in which he has invested. The mandate of the Canada Revenue Agency (CRA) is to administer the Income Tax Act and does not extend to resolving disputes between policyholders and their insurers with regard to the terms and conditions of a particular policy. In this regard, you may wish to advise your constituent to contact the OmbudService for Life and Health Insurance (OLHI), which was established to assist in the resolution of disputes between insurers and their policyholders. Additional information can be obtained on the OLHI Web site at www.olhi.ca.
With regard to XXXXXXXXXX 's reference to "exempt policies" under the Act, I can provide you with general comments, which I hope will be of assistance. An exempt policy is a type of life insurance policy that is accorded specific tax treatment under the Act. Under the rules of the Act, the income earned on most investment products must be included in computing the holder's income on an annual accrual basis. However, when the investment product is an "exempt policy" for purposes of the Act, the income accumulating on investments held within the policy is not required to be included in the taxable income of the policyholder on an annual accrual basis.
Under rules that are set out in the Income Tax Regulations, in order for a life insurance policy to be an "exempt policy" for tax purposes, the amount of income accumulating within the policy and the relative death benefit under the policy must be maintained below threshold levels throughout the term of the policy. An insurer modifying the premiums or death benefit under a life insurance policy in order to maintain the "exempt policy" status of the policy would not be prohibited by the rules in the Act that apply to "exempt policies." Whether an insurer in taking actions to maintain the "exempt policy" status of a particular policy is contravening the terms of the life insurance contract is not within the CRA's mandate to consider.
I trust that the information I have provided will be helpful in responding to XXXXXXXXXX .
Sincerely,
Jean-Pierre Blackburn, P.C., M.P.
