CRA indicates that an interest in a related segregated fund trust could be transferred on a s. 85(1) rollover basis

S. 39(1)(a)(iii) provides that a taxpayer’s capital gain excludes gain from the disposition of an insurance policy, including a life insurance policy, except for “that part of a life insurance policy in respect of which a policyholder is deemed by paragraph 138.1(1)(e) to have an interest in a related segregated fund trust”. CRA considered that on this basis “a disposition of an interest in a related segregated fund trust will generally result in capital gains treatment” so that “the interest may be considered a capital property, and accordingly, an eligible property under paragraph 85(1.1)(a) of the Act for purposes of subsection 85(1).” Accordingly, such an interest could be transferred on a s. 85(1) rollover basis.

Neal Armstrong. Summaries of 8 July 2020 CALU Roundtable Q. 4, 2020-0842171C6 under s. 85(1.1)(a) and s. 138.1(1)(e).