CRA indicates that insurance assets transferred to a subsidiary in consideration for assuming obligations of the insurance business could qualify as “reinsurance premiums”

In the context of a tax-deferred transfer under s. 138(11.94) of an insurance business carried on in Canada to a corporation within the same wholly-owned group, s. 138(11.5)(m) provides that a reinsurance premium paid or payable by the transferor to the transferee respecting the assumed or reinsured obligations will be included or deducted, as the case may be, only to the extent that doing so may reasonably be regarded as necessary to determine the appropriate amount of income of both the transferor and the transferee.

After noting that whether s. 138(11.5)(m) can apply depends, in part, on whether the drop-down occurs under a reinsurance arrangement, CRA stated that “the assets transferred by the transferor to the transferee in exchange for assuming the transferred obligations may be a ‘reinsurance premium’” (although that term could also extend to “any amounts paid or payable to the transferee as consideration for the assumed obligations in respect of the transferred insurance business.”)

Neal Armstrong. Summary of 15 November 2016 External T.I. 2015-0597921E5 under s. 138(11.5)(m).