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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: Whether possible to rollover interest in life insurance policy to minor child if parent is the insured.
Position: No
Reasons: 148(8) only permits rollover when child is insured.
XXXXXXXXXX 2001-009818
October 17, 2001
Dear XXXXXXXXXX:
Re. Transfer of Life Insurance Policy
This is in reply to your letter of April 24, 2001 enquiring whether a roll over would be available in a situation where a policyholder's interest in a universal life insurance policy on the life of the policyholder is transferred to the policyholder's child.
Pursuant to subsection 148(7) of the Income Tax Act (the "Act"), where an interest in a life insurance policy is disposed of by way of a gift, by distribution from a corporation, or by operation of law only to any person, or in any manner whatever to any person with whom the policyholder was not dealing at arm's length, the policyholder is deemed to receive proceeds equal to the value of the interest at the time of disposition, and the person acquiring the interest is deemed to acquire it at a cost equal to such value. Subsection 148(8) of the Act provides that where an interest of a policyholder in a life insurance policy is transferred to a child of the policyholder for no consideration and a child of the policyholder or a child of the transferee is the person whose life is insured under the policy, the interest is deemed to have been disposed of by the policyholder for proceeds of disposition equal to the adjusted cost basis to the policyholder of the interest immediately before the transfer and to have been acquired by the child at a cost equal to that amount.
Since in your situation the policyholder is the life insured and not the child, subsection 148(7) will apply and the policyholder will be required to include in income that amount by which the proceeds of disposition exceed the adjusted cost basis to the policyholder of the interest immediately before the disposition in accordance with subsection 148(1).
We hope that our comments will be of assistance.
Yours truly,
F. Lee Workman
Manager
Financial Institutions Section
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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