20 December 2002 External T.I. 2002-0177705 - Proposed FIE Rules

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 proposed subparagraph 94.2(11)(c)(ii) applies to a ordinary term insurance policy such that proposed paragraph 94.2(11)(a) would not apply?

Position: Yes if it is a pure term insurance policy with no savings element.

Reasons: Interpretation of the proposed law.

XXXXXXXXXX 2002-017770
S. Leung
December 20, 2002

Dear XXXXXXXXXX:

Re: Proposed subparagraph 94.2(11)(c)(ii) of the Income Tax Act (the "Act")

We are writing in reply to your letter of November 27, 2002 in which you requested our view as to whether the above-noted proposed provision of the Act excludes from taxation an ordinary term insurance policy with no investment element.

Our Comments

In the Legislative Proposals and Explanatory Notes on Taxation of Non-Resident Trusts and Foreign Investment Entities published by the Honourable John Manley, P.C., M.P., Deputy Prime Minister and Minister of Finance in October 2002, proposed paragraph 94.2(11)(c) of the Act reads in part as follows:

"(c) paragraphs (a) and (b) do not apply to a taxpayer for a taxation year in respect of an insurance policy if

(i) ...

(ii) under the terms and conditions of the insurance policy, the taxpayer is entitled to receive only benefits payable as a consequence of the occurrence of risks insured under the policy, an experience rated refund of premiums for a year or a return of premiums previously paid upon the surrender, cancellation or termination of the insurance policy, or" (underlining for emphasis)

In our opinion proposed paragraph 94.2(11)(a) of the Act will not apply to an interest in a pure term insurance policy with no savings or investment element by virtue of proposed subparagraph 94.2(11)(c)(ii) of the Act. As a result, proposed subsections 94.2(3) and (4) of the Act would not apply to an interest in such a policy.

As stated in paragraph 22 of Information Circular 70-6R5 dated May 17, 2002, the opinions expressed in this letter are not rulings and are consequently not binding on the Canada Customs and Revenue Agency.

Yours truly,

Jim Wilson
Section Manager
for Division Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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