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.
Document No.: E 2001-0072805
Author: SARAZMI
Reference Date: May 8, 2001
Subject: CALU CONFERENCE - 2001
Section Ref.: 248(1)
Principal Issues: Will subsection 207.6(2) of the Act apply where an RCA trust acquires an interest in a life insurance policy?
Position TAKEN: No.
Reasons: Subsection 207.6(2) does not apply where an RCA trust acquires the interest in a life insurance policy. The rules in 207.6(2) only apply if the plan or arrangement is not otherwise an RCA for purposes of the Act.
CALU - Conference for Advanced Life Underwriting (2001)
CALU - Conference for Advanced Life Underwriting (2001)
Question 4
RCA's and Deemed RCA's
The trustee of an RCA trust may acquire an interest in an insurance policy on the life of a plan participant in connection with the funding of the obligations under the plan. In a recent technical interpretation (file number 2000-0017065), the Agency was asked if an RCA trust that makes withdrawals from a life insurance policy would be required to pay refundable tax on the amount included in its income.
The Agency's response seemed to indicate that in circumstances such as those described above, amounts withdrawn from the policy by the trustee would be considered to have been received directly by the beneficiary and, consequently, the trust would not be liable for the payment of the refundable tax in respect thereof. The Agency also indicated that such amounts might create a refund of refundable tax previously paid by the RCA trust.
In the case of an RCA trust that holds a life insurance policy or in the case of a life insurance policy deemed to be an RCA pursuant to subsection 207.6(2), can we confirm that withdrawals from a life insurance policy will not result in a liability for refundable tax within the meaning assigned by subsection 207.5(1)?
Agency's Response
In our recent technical interpretation, we provided general comments regarding the application of subsection 207.6(2) to an employer's acquisition of a life insurance policy to fund its obligation to provide certain benefits to an employee. The general comments were not intended to apply to an investment in a life insurance policy acquired by an RCA trust.
Where an employer is obliged to provide benefits that are to be received or enjoyed by any person after his or her retirement and an interest in a life insurance policy may reasonably be considered to be acquired by the employer to fund those benefits, the provisions of subsection 207.6(2) will apply to the acquisition of the life insurance policy. The life insurance policy will also be subject to the provisions of paragraphs 207.6(2)(a) to (d). The purpose of subsection 207.6(2) is to treat the employer's acquisition of the interest in the life insurance policy as a retirement compensation arrangement for the purposes of Part XI.3.
A plan or arrangement that qualifies as an RCA under the provisions of subsection 248(1) will not be subject to subsection 207.6(2). This is also the case where the custodian of an RCA acquires an interest in a life insurance policy. Consequently, the income portion of the payments made to the RCA custodian under the life insurance policy will be subject to the refundable tax described in subsection 207.5(1) and the payments to the RCA custodian under the life insurance policy will not qualify as distributions for purposes of the refundable tax.
Where an employer acquires a life insurance policy which is a deemed RCA, the amounts withdrawn under the life insurance policy will be deemed to be an amount received out of or under the RCA by the recipient and the amount will be included in the recipient's income under paragraph 56(1)(x) or 12(1)(n.3). The amounts withdrawn will not be considered as income from property of the deemed RCA, but will qualify as distributions by the deemed RCA for purposes of computing the refundable tax.
Prepared by: Mickey Sarazin
Section 43
May 1, 2001
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