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: Should a reinsurer which has reinsured pre-1996 life insurance policies compute its policy reserves using the rules for pre-1996 life insurance policies?
Reasons: The insurer uses the rules for the pre-1996 life insurance policies to compute its policy reserves. The reinsurer should use the same rules.
April 4, 2000
This is in reply to your letter of December 22, 1999 wherein you requested our views with respect to the computation by a reinsurer of policy reserves for purposes of subparagraph 138(3)(a)(i) of the Income Tax Act ("Act").
The particular circumstance in your letter on which you have asked for our views appears to be a factual situation involving a specific taxpayer. As explained in Information Circular 70-6R3, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office for their views. However, we are prepared to offer the following general comments which may be of assistance.
The issue is whether the reinsurer which has reinsured life insurance policies in Canada which are "pre-1996 life insurance policies" as defined in subsection 1408(1) of the Income Tax Rulings should use the rules for "pre-1996 life insurance policies" for computing its policy reserves pursuant to section 1401 of the Income Tax Regulations.
While it is not clear that a reinsurance agreement would in fact be a "life insurance policy" and a "life insurance policy in Canada" as defined in subsection 138(12) of the Act, the Agency has thus far accepted this position where the policies that are the subject of the reinsurance agreement are "life insurance policies in Canada". Given that the insurer calculates its reserves using the rules for the "pre-1996 life insurance policies" it is our view that the reinsurer should use the same rules. We would not consider that the rules for "post-1995 life insurance policies" may apply without reconsidering whether the reinsurance agreement is a "life insurance policy" and a "life insurance policy in Canada" to begin with.
The foregoing comments are intended as a general discussion only. Therefore while we hope our comments are of assistance to you, this opinion is not a ruling and accordingly, it is not binding on Canada Customs Revenue Agency.
F. Lee Workman
Financial Institutions Section
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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