29 August 2005 External T.I. 2005-0125391E5 - Transfer of Life Insurance Policy to Child

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: Is the requirement under subsection 148(8) of the Act, that a child of the policyholder or a child of the transferee be the only life insured under the policy, a condition that must be satisfied since the policy was issued, or must the condition only be satisfied at the time of the transfer referred to in subsection 148(8)?

Position: Our general view is that the child must be the only life insured under the policy at the time the policy is transferred to a child of the policyholder.

Reasons: Consistent with previous position in document 2005-0116681C6.

XXXXXXXXXX 2005-012539
A. Campbell
August 29, 2005

Dear XXXXXXXXXX:

Re: Transfer of Life Insurance Policy to Child of the Policyholder

This is in reply to your letter of April 12, 2005, wherein you requested our views on the application of subsection 148(8) of the Income Tax Act (the "Act") to a hypothetical set of facts. You asked whether subsection 148(8) of the Act applies where the parent and the child were both insured under the policy when the policy was issued to the parent, but the coverage on the parent's life was dropped such that the child was the only life insured under the policy at the time the policy was actually transferred.

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an Advance Income Tax Ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following general comments.

Subsection 148(8) of the Act generally applies where a policyholder transfers a life insurance policy, for no consideration, to a child of the policyholder and either a child of the policyholder or a child of the transferee is the life insured under the policy. In the situation described, it is our general view that subsection 148(8) of the Act would apply to the transfer of the policy from the parent to the child provided the child is the only life insured under the policy at the time the policy is transferred for no consideration to the child.

There may be tax consequences that would result from the removal of a life insured from coverage under a multiple life policy. Whether a tax liability to the policyholder will result when a life insured is removed is a determination that could only be made after a thorough review of the terms and conditions of the life insurance policy and the facts of the particular situation.

We trust that these comments will be helpful. However, as stated in paragraph 22 of Information Circular 70-6R5, this opinion is not a ruling and consequently, is not binding on the CRA in respect of any particular situation.

Yours truly,

F. Lee Workman
Section Manager
Charitable and Financial Institution Sectors
Income Tax Rulings Directorate
Policy and Planning Branch