CRA will not follow a potentially favourable ARQ policy on the deduction of critical illness insurance policy premiums
A corporation has a critical illness insurance policy ("CII policy") that it purchased for its sole shareholder. This policy was assigned as security at the request of the lender (by way of a movable hypothec) in connection with a loan taken out to earn income from a business or property. Does CRA agree with the ARQ conclusion in Interpretation Letter 19-045061-001, dated January 28, 2020, that a taxpayer, in computing business or property income could deduct, under the Quebec equivalent of s. 20(1)(e.1), as a guarantee expense, the premiums on a CII policy assigned by it to the lender at the latter's request?
CRA indicated that, no, its position remained that premiums payable in respect of a CII policy assigned as security for a loan of the corporation cannot be deducted in computing its income from a business or property since they are capital expenditures, and are not deductible pursuant to s. 20(1)(e), (e.1) or (e.2) – and that this position would not change if the CII policy was assigned to the lender by naming the lender as the beneficiary of the policy.
Neal Armstrong. Summary of 7 October 2022 APFF Financial Strategies and Instruments Roundtable, Q.6 under s. 20(1)(e.1).