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:
Tax treatment of an offshore investment product acquired by a non-resident individual when the individual later immigrates to Canada.
Position:
Provided very general comments.
Reasons:
The legal nature of the offshore investment product is not clear.
XXXXXXXXXX 2000-001325
Attention: XXXXXXXXXX
October 30, 2000
Dear Sirs:
Re: Product issued by a non-resident insurer
This is in reply to your letter of March 3, 2000 concerning the income tax treatment of a particular investment product acquired by a non-resident individual from a non-resident insurer when the individual later becomes a resident of Canada. You have requested our views with respect to the taxation of this product for income tax purposes.
Your request appears to relate to either a proposed transaction or a completed transaction. Confirmation of the income tax consequences of proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. To make such a request the advance income tax ruling must be submitted in accordance with the guidelines set out in Information Circular 70-6R3 dated December 30, 1996. However, if the situation relates to a completed transaction a request for CCRA's views must be made to the appropriate local Tax Services Office.
While we are unable to comment specifically on the situation you have described, we can offer the following general comments.
Whether a particular product would constitute a life insurance policy for the purposes of the Income Tax Act (the "Act") is a question of fact and law. While not necessarily conclusive, where a product does not provide for a death benefit and does not constitute an annuity arrangement, it may be suggestive that it would not constitute a life insurance policy. If a product does constitute a life insurance policy, it is possible that where there is a specific allocation of assets provided for it, the product would constitute a segregated fund policy to which the rules in section 138.1 of the Act apply.
If it is determined that a product is not a life insurance policy, it may well constitute an investment contract as defined in subsection 12(11) of the Act. To the extent that a product is an investment contract, the rules in subsection 12(4) of the Act may apply. Under subsection 12(4) of the Act, where a taxpayer, other than a taxpayer to whom subsection 12(3) of the Act applies, holds an interest in an "investment contract" on any "anniversary day" of that contract, an accrual of interest to that anniversary day is required to be included in a taxpayer's income for that year, to the extent that any such amount has not otherwise been included in the taxpayer's income for the year or any preceding year.
Whether or not a product would constitute "capital property" as defined in section 54 of the Act is a question of fact and as indicated in paragraph 15(e) of IC 70-6R3, if the major issue in an advance income tax ruling involves whether a transaction should be viewed as being on account of income or capital we will be unable to provide a ruling. We note, however, if a product constitutes a life insurance policy, it cannot be capital property since any gain on the disposition of an interest in a life insurance policy would generally be included in income under subsection 148(1) of the Act.
When an individual immigrates to Canada and becomes a Canadian resident, subsection 128.1(1) of the Act generally deems that individual to have disposed of each property owned by him or her immediately before that time for proceeds of disposition equal to the fair market value of the particular property at that time and to have re-acquired each such property so disposed of for a cost equal to the amount of the deemed proceeds. These rules would generally apply to a taxpayer's interest in a life insurance policy that is not a "taxable Canadian property" as that term is defined for the purpose of section 128.1 of the Act by subsection 248(1) of the Act.
We would also like to add that the foreign property reporting rules set out in section 233.3 of the Act require a person that owns "specified foreign property", the total cost of which exceeds $100,000 at any time in the year, to file a prescribed form (T1135) by that person's normal tax return filing deadline under Part I of the Act. A "specified foreign property" is defined in subsection 233.3(1) of the Act and could include, where applicable, a taxpayer's interest in a foreign life insurance policy.
Our comments are provided in accordance with the practice referred to in paragraph 22 of IC 70-6R3 and are not binding upon CCRA.
Yours truly,
F. Lee Workman
Manager
Financial Institutions Team
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2000
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2000
Email this Content