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.
Principal Issues: Will subsection 148(8) of the Act apply to the transfer of a life insurance policy under which the life of more than one child is insured?
Position: No.
Reasons: Subsection 148(8) is an exception to the general rule apply to non-arm's length transfers of life insurance policies which is found in subsection 148(7). In our view it would be "contrary to the intention" of subsection 148(8) to apply subsection 33(2) of the Interpretation Act, so as to expand the exception in subsection 148(8) to multiple life policies. This is also consistent with the views we provided in our response to Question #1 at the 2000 CALU Roundtable, in respect of the application of subsection 70(5.3) of the
Act to multiple life policies.
CALU - Conference for Advanced Life Underwriting (2004)
Question 6
Transfer of a Life Insurance Policy Under Which More Than One Child is Insured
Subsection 148(8) provides rollover treatment when a policyholder transfers a life insurance policy to a child of the policyholder for no consideration if a child of the policy or of the transferee is the life insured.
Consider the following scenario: A father owns a life insurance policy under which both his son and daughter-in-law (who is considered a child under the extended definition of child in subsection 252(1)) are the lives insured. The son's son is named as beneficiary. The father transfers ownership of the policy to his son for no consideration.
It is unclear whether subsection 148(8) applies to the transfer. Paragraph 148(8)(b) requires that "a child of the policyholder or a child of the transferee is the person whose life is insured under the policy." (emphasis added) This can be interpreted to limit the rollover to situations where only one life is insured under the policy. On the other hand, the position can be taken based on the Interpretation Act that there can be more than one life insured, as long as each life is a child of the policyholder or the transferee. Subsection 33(2) of the Interpretation Act provides that in construing every enactment "[w]ords in the singular include the plural, and words in the plural include the singular."
Question:
Does the Agency agree that subsection 148(8) applies to the transfer in this example?
Agency's Response
It is the Agency's view that subsection 148(8) would not apply to the transfer in this example. As is noted in the question, subsection 33(2) of the Interpretation Act provides that in construing every enactment "[w]ords in the singular include the plural, and words in the plural include the singular." Subsection 3(1) of the Interpretation Act, however, provides that the provisions of the Interpretation Act apply to all other federal enactments "unless a contrary intention appears".
Subsection 148(7) of the Income Tax Act provides that as a general rule, transfers of life insurance policies to non-arm's length persons are taxable dispositions at the value of the policy (as defined in subsection 148(9)). Subsections 148(8) to (8.2), provide for transfers at the adjusted cost basis of a life insurance policy in specific non-arm's length circumstances. Since subsection 148(8) is, in our view, intended to provide an exception to the general rule, it would be contrary to the intention of the provision to apply subsection 33(2) of the Interpretation Act, in order to expand the exception to the general rule.
This position is consistent with our response to Question 1 at the 2000 CALU Conference Roundtable. That question dealt with the interpretation of the phrase "the person whose life was insured" in subsection 70(5.3) of the Income Tax Act in the context of a multiple-life policy. Our response was that the wording in subsection 70(5.3) contemplates that there can only be one life insured under the policy.
The Department of Finance confirmed that at the time subsections 70(5.3) and 148(8) were enacted there was no tax policy intention to have the provisions apply to life insurance policies under which more than one life is insured. It is our view that a legislative amendment would be required to provide for the application of subsection 148(8) to multiple life policies. A request for such amendment would need to be made to the Department of Finance.
Alison Campbell
Sr. Rulings Officer
957-3496
May 4, 2004
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