CRA does not rule out generating a s. 207.7(2) refund where an RCA trust distributes a life insurance policy to its employee beneficiary

CRA considered, respecting an RCA trust with an employee as its sole beneficiary, that its “holding of a life insurance policy with life insurance coverage (death benefit) in a year is a benefit that is conditional on the existence of the RCA” and, thus, was a benefit described in para. (a) of the RCA “advantage” definition.

What then if the RCA trust transferred the policy to the employee and applied s. 207.5(2) to claim a refund under s. 207.7(2) on the basis that the RCA trust no longer holds property. The issue is that, under s. 207.5(3), s. 207.5(2) does not apply if any part of a decline in the fair market value of subject property of the RCA is reasonably attributable to an advantage in relation to the RCA trust - subject to the exercise of CRA discretion. In this regard, CRA stated:

In the situation where an RCA trust is wound up, the Minister may, depending on the circumstances, allow the election by adjusting the amount deemed under subsection 207.5(2) to be the RCA's refundable tax. The deemed amount may, depending on the circumstances, be adjusted to reflect the decline in the FMV caused by a prohibited investment or a benefit that would otherwise not result in a repayment.

This sounds like an invitation to request a ruling.

Neal Armstrong. Summary of 15 May 2017 External T.I. 2015-0580461E5 Tr under s. 207.5(3).