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 disposition of an exempt life insurance policy taxable?
Position: Yes.
Reasons:
The disposition is taxable pursuant to subsection 148(1) and paragraph 56(1)(j).
2008-027411
XXXXXXXXXX Helen Zelobowski
(519) 571-6987
July 7, 2008
Dear XXXXXXXXXX :
Re: 2003 Tax Year
We are writing in response to your letter dated April 29, 2008 in which you continue to express disagreement with the reassessment to your 2003 Personal Income Tax Return. This reassessment was made to include in your income gains that you realized from the disposition of four exempt life insurance policies in 2003. These gains were included in your income in accordance with section 148 and paragraph 56(1)(j) of the Income Tax Act (the "Act").
We have noted that you previously appealed this reassessment to the Tax Court of Canada and that your appeal was dismissed on XXXXXXXXXX . As you did not appeal the judgment of the Tax Court of Canada within the appeal period, we are required to follow this judgment.
Even though we are required to follow the judgment of the Tax Court, we have reviewed the reassessment and agree with it. We understand that you believe that the proceeds that you received from these policies are not taxable because the policies were exempt policies. You have specifically referred to paragraph (j) of the definition of "disposition" in relation to an interest in a life insurance policy under section 148 of the Act. Because of this paragraph, a "disposition" of an interest in a life insurance policy does not include a payment under a life insurance policy that is an exempt policy, in consequence of the death of any person whose life was insured under the policy.
Although the policies that you terminated in 2003 were exempt policies, the exclusion under paragraph (j) does not apply in your case because the payments that you received under the policies were not as a result of the death of anyone insured under the policy. We understand that you terminated the policies to assist with the funeral costs of your spouse. However, your spouse was not a person whose life was insured under the policy. Your spouse was a beneficiary of the policy. Therefore, the withdrawals from your policies in 2003 were taxable dispositions to the extent that the proceeds were greater than the adjusted cost basis of the policies.
We hope that these comments help you understand why gains from the disposition of your exempt policies in 2003 were included in your income.
Yours truly,
F. Lee Workman
Manager
Charitable and Financial Institutions Sectors
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2008
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2008
Email this Content