24 December 2002 External T.I. 2002-0172875 - LIFE INSURANCE POLICY GIFT OF PREMIUMS

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:

1. An individual wishes to pay the premiums on a life insurance policy which will be owned by a charity. Is it necessary for the charity to be designated as an irrevocable beneficiary of the policy in order for the premiums paid to qualify as a charitable gift?

2. Is the individual entitled to a charitable donations tax credit in respect of a portion of the premiums paid on a policy owned by a qualified donee where the individual's estate is named as one of the beneficiaries under the policy?

Position:

1. No.

2. Possibly, however this determination can only be made after reviewing the facts of the specific case.

Reasons:

1. Pursuant to IT-244R3, where an individual absolutely assigns a life insurance policy to a qualified donee and makes the qualified donee the registered beneficiary of the policy, the individual may claim a charitable donations tax credit for the donation. If the individual continues to pay the premiums on the policy, each payment will also qualify as a charitable gift.

2. Question of fact.

XXXXXXXXXX 								2002-017287

December 24, 2002

Dear XXXXXXXXXX:

Re: Donation of Life Insurance Premiums

This is in reply to your facsimile letter of November 7, 2002 concerning the payment by an individual of premiums on a particular term life insurance policy purchased for the purpose of making a charitable gift.

You describe a life insurance policy under which the individual would be designated as the life insured. A charity would be the owner of the policy as well as beneficiary of 90% of the death benefit. The remaining 10% of the death benefit would go to the individual's estate. The individual would pay the monthly or annual premiums on the policy. Your question is whether a tax receipt may be issued for a percentage of the premiums paid by the individual. Further, you would like to know whether the words "irrevocably and/or absolutely" are required in the designation description on the enrollment form to the policy.

Your request appears to relate to either a proposed transaction or a completed transaction. As explained in Information Circular 70-6R5, 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. Should your situation relate to 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.

As indicated in paragraphs 1 and 2 of Interpretation Bulletin IT-244R3, Gifts of Individuals of Life Insurance Policies as Charitable Donations, where a life insurance policy has been absolutely assigned to a qualified donee and the donee has become the registered beneficiary of the policy, the individual will be entitled to claim a charitable donations tax credit in respect of the value of the policy, if any, at the time it is assigned to the qualified donee. Further, if the individual donates an amount to the qualified donee to enable the donee to pay the premiums of the policy, the amount donated will also qualify as a charitable gift. Where the premiums are paid directly to the insurance company at the request of, or with the concurrence of, the qualified donee, each amount so paid will qualify as a charitable gift.

While the comments in IT-244R3 relate to a transfer of ownership of an existing life insurance policy, they also apply to a situation where a policy is purchased for the purpose of making a charitable gift. Accordingly, for each premium payment on such a policy to qualify as a charitable gift, a qualified donee must be both the owner and registered beneficiary of the policy. Given these requirements, it is our view that it is not necessary to specify the donee as an irrevocable or absolute beneficiary of the policy.

As noted above, IT-244R3 contemplates a situation where a qualified donee has become the owner and beneficiary of a life insurance policy. The Interpretation Bulletin does not address the situation where anyone other than a qualified donee is the registered beneficiary under the policy at the time the qualified donee becomes the owner of the policy. We are not prepared to comment on the income tax implications, including the characterization of a portion of the premiums as a charitable gift, where the estate of the individual funding the premiums is one of the named beneficiaries under the policy unless we are provided with all of the relevant details and documentation. As noted above, should you wish to apply for an advance income tax ruling with regard to a specific transaction that you are proposing, we would be prepared to address your specific income tax concerns.

The publication referred to in this letter may be obtained from your local tax services office or from our Internet web site at www.ccra-adrc.gc.ca.

We hope that our comments will be of assistance.

Yours truly,

F. Lee Workman
Manager
Financial Institutions Team
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch