Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: Is the "adjusted cost basis" of a life insurance policy reduced by the amount of the premiums payable which may be deducted pursuant to paragraph 20(1)(e.2)?
Position: Not per se but...
Reasons: The "adjusted cost basis" is reduced by the net cost of pure insurance.
XXXXXXXXXX 1999-001464
Attention: XXXXXXXXXX
April 4, 2000
Re: Paragraph 20(1)(e.2) of the Income Tax Act ("Act")
This is in reply to your letter dated December 3, 1999 wherein you requested our views with respect to the calculation of the "adjusted cost basis" of a life insurance policy pursuant to that definition in subsection 148(9) of the Act which is used as collateral security and which otherwise meets the requirements of paragraph 20(1)(e.2) of the Act. You have asked if the "adjusted cost basis" of the policy is reduced by premiums deducted pursuant to paragraph 20(1)(e.2) of the Act.
Premiums in respect of a particular life insurance policy used as collateral security may be deducted for income tax purposes subject to the provisions of paragraph 20(1)(e.2) of the Act. The amount deductible under paragraph 20(1)(e.2) of the Act is based on the lesser of the amount of the premiums payable under a particular policy and the net cost of pure insurance of such a policy as determined in accordance with section 308 of the Income Tax Regulations in respect of a particular taxation year.
There is no specific provision in the definition of "adjusted cost basis" in subsection 148(9) of the Act reducing the "adjusted cost basis" by the amount of the premiums payable deducted pursuant to paragraph 20(1)(e.2) of the Act. We note, however, that this definition contains a provision which reduces the "adjusted cost basis" by the net cost of pure insurance of a life insurance policy (other than an annuity contract) that was last acquired after December 1, 1982 whether or not an amount has been deducted in respect of premiums payable under a life insurance policy pursuant to paragraph 20(1)(e.2) of the Act.
We trust that the above comments will be of assistance.
Yours truly,
F. Lee Workman
Section Manager
Financial Institutions Section
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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