Income Tax Severed Letters - 2019-06-26


2019 Ruling 2018-0780761R3 F - Single-wing split-up butterfly

Unedited CRA Tags
55(2), 55(3), 55(3.1)

Principales Questions: Whether the butterfly dividends are exempt from the application of subsection 55(2) by virtue of paragraph 55(3)(b).

Position Adoptée: Yes, favourable Rulings given.

Raisons: Complies with paragraph 55(3)(b) and previous CRA positions.


14 May 2019 CLHIA Roundtable Q. 2, 2019-0799051C6 - 2019 CLHIA Roundtable - 148(7) questions

Unedited CRA Tags
148(7), 15(1), 245(2), 246(1), 6(1)(a), 148(1), 56(1)(j)
s. 6(1)(a) applied to transfer of life insurance policy to employee at an undervalue, notwithstanding the application of s. 148(7)
cost of policy gratuitously transferred to arm's length employee determined under s. 148(7)(b) rather than s. 52(1)

Principal Issues: Roundtable Question 2 deals with two scenarios and asks for CRA's views on the application of subsection 148(7) in those scenarios. The first scenario deals with the transfer of a corporate owned life insurance policy to a former shareholder of the corporation. We were asked whether the transfer would be considered to take place at non-arm's length such that subsection 148(7) applies. The second scenario deals with the transfer of a life insurance policy from an employer to a non-shareholder employee. We were asked whether subsection 148(7) and paragraph 6(1)(a) would apply to the transfer and what the tax implications would be to the employer and the employee.

Position: For the first issue - whether parties are dealing at arm's length is a question of fact. We also caution that if the purpose for structuring a transaction in a particular manner is to avoid the application of a subsection 15(1) benefit, we would need to consider the possible application of subsection 245(2) or 246(1). For the second issue - we confirm that subsection 148(7) and paragraph 6(1)(a) would generally apply to the situation described. The employer would realize a policy gain in this case by the excess of the CSV of the policy over the ACB of the policy at the time of the transfer. The employee would have an employment benefit under paragraph 6(1)(a) equal to the excess of the FMV of the policy at that time, over the amount of any consideration paid by the employee for the policy.

Reasons: For the first issue - Under subsection 251(2), whether two unrelated parties are dealing at arm's length is a question of fact. All of the facts relevant to a particular situation would need to be considered before determining whether parties to the transaction were dealing at arm's length. For the second issue, the application of subsection 148(7) and paragraph 6(1)(a) when a policy is transferred from an employer to a non-shareholder employee is a position we have taken in the past and remains our position.

14 May 2019 CLHIA Roundtable Q. 3, 2019-0799111C6 - 2019 CLHIA Q3 - 3rd party RRSP contributions

Unedited CRA Tags
146(1) "retirement savings plan", 204(1.2), 146(5), 146(5.1)
a 3rd party can make an RRSP contribution
payment at direction of annuitant is payment by annuitant

Principal Issues: Can a Financial Institution accept a contribution to an annuitant’s RRSP from a third party who is not the annuitant’s spouse?

Position: Yes, provided that the payment is made at the direction or with the concurrence of the annuitant of the RRSP.

Reasons: Payment would be considered to be premium paid to the RRSP by the annuitant.

14 May 2019 CLHIA Roundtable Q. 6, 2019-0799101C6 - CLHIA 2019 Conference-Q6 Foreign Exempt Policies

Unedited CRA Tags
12.2, 56(1)(j), 138(12), Regulation 306
no accommodation for the technical impossibility of demonstrating that a life insurance policy issued abroad is exempt
taxpayer cannot rely on failure of foreign insurer to test exemption

Principal Issues: Will the CRA provide guidance regarding the application of Exempt Test to life insurance policies issued on non-resident lives?

Position: Unable to provide guidance.

Reasons: Given that the information to determine the exempt status of a particular life insurance policy is only available in the accounts of the insurer, the onus is on the policyholder to establish that the policy qualifies as an exempt policy.

14 May 2019 CLHIA Roundtable Q. 7, 2019-0799121C6 - 2019 CLHIA Conference Roundtable Question 7

Unedited CRA Tags
a TFSA cannot hold a non-commutable life annuity

Principal Issues: Whether a life annuity contract can be registered as a TFSA?

Position: No.

Reasons: For commercial reasons, a life annuity contract is typically non-commutable and therefore will not satisfy the registration condition in paragraph 146.2(2)(2)(e).

14 May 2019 CLHIA Roundtable Q. 14, 2019-0799191C6 - CLHIA Q. 14 - IPPs and pension splitting

Unedited CRA Tags
ITA 60.03 and 118(7); ITR 8502(d)(x) and 8503(26)
required top-up payments to satisfy the minimum-amount IPP rules do not qualify for income-splitting
Words and Phrases

Principal Issues: Is the portion of the IPP minimum amount in excess of the member's lifetime retirement benefits under the plan eligible for pension income splitting under section 60.03?

Position: No.

Reasons: It is not a life annuity payment.