Income Tax Severed Letters - 2023-11-15

Conference

28 September 2023 CLHIA Roundtable Q. 1, 2023-0971701C6 - Life insurance – contractual changes

Unedited CRA Tags
148(10)(d)
Summary Under
Tax Topics - Income Tax Act - Section 148 - Subsection 148(9) - Disposition
a no-cost endorsement to a life insurance policy to add benefits could be a disposition

Principal Issues: Does the endorsement to a defined set of policyholders of a benefit under an in-force exempt life insurance policy for no cost and no underwriting requirement constitute a disposition for tax purposes?

Position: The determination of whether endorsements adding certain benefits to a life insurance policy constitutes a disposition for income tax purposes can only be made on a case-by-case basis following a review of the facts and circumstances of a particular case.

Reasons: Whether policy amendments are so fundamental as to go to the root of the policy is a mixed question of fact and law.

28 September 2023 CLHIA Roundtable Q. 2, 2023-0971711C6 - Reimbursement by advisor of policyholder expense

Unedited CRA Tags
9(1), 12(1)(x), 18(1)(a)
Summary Under
Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(x)
an advisor’s reimbursement of a client for the client’s costs in reviewing a proposed life insurance policy purchase was an s. 12(1)(x) inclusion

Principal Issues: 1) Would the views set out in document 2010-0359401C6 apply to the payment of a client's accounting fees by a life insurance advisor? 2) Would the tax treatment of the payment of the client's accounting fees by the life insurance advisor be different if the client did not purchase a life insurance policy?

Position: The views set out in document 2010-0359401C6 would apply to the reimbursement of the accounting fees whether or not the client acquired the life insurance policy.

Reasons: Prior positions.

28 September 2023 CLHIA Roundtable Q. 3, 2023-0971721C6 - CLHIA 2023 - Shares owned by life interest trust

Unedited CRA Tags
70(5.3), (6), 104(4)

Principal Issues: Does subsection 70(5.3) influence the determination of whether a corporate held life insurance policy taints a spousal trust when the shares of a corporation are transferred to the spousal trust for purposes of subsection 70(6)?

Position: Subsection 70(5.3) does not influence the determination of whether a testamentary spousal trust meets the requirements set out in subsection 70(6) of the Act.

Reasons: Subsection 70(5.3) is a valuation provision that only assigns a life insurance policy a fair market value (FMV) equal to the policy's cash surrender value when determining the FMV of any property that is deemed to have been disposed of as a consequence of a particular individual's death or as a consequence of the particular individual becoming or ceasing to be resident in Canada for purposes of subsections 70(5) and 104(4) and section 128.1 of the Act.

28 September 2023 CLHIA Roundtable Q. 4, 2023-0974191C6 - IPPs & Investments

Unedited CRA Tags
Subparagraph 56(1)(a)(i), subsections 147.1(5), 147.2(2) & 147.3(7), Reg. 8502(h), 8514(1)(b) and (c)

Principal Issues: 1. Is a life insurance policy, on the life of a plan member or a person related to that member, a prohibited investment for a trust governed by an RPP? 2. Would the CRA consider a recommendation to the Minister to impose additional conditions pursuant to subsection 147.1(5) which will prohibit such a trust from holding a life insurance policy ? 3. How to prepare an actuarial valuation report where an IPP holds an insurance policy as a permitted investment?

Position: 1. No. 2. No. 3. Information provided.

Reasons: 1. Legislation. 2. Prior positions. 3. Prior positions.

28 September 2023 CLHIA Roundtable Q. 5, 2023-0974211C6 - Copycat annuity

Unedited CRA Tags
Reg. 8502(d)(ix)

Principal Issues: 1. Where indexation is acquired, can CRA confirm that the indexation must be limited to the amount that can be purchased with the OACs the plan member has chosen to allocate for that purpose? 2. Can CRA confirm that in the circumstances the excess of $20,000 cannot be used to acquire additional indexing?

Position: 1. Yes. 2. Yes.

Reasons: 1. Prior position. 2. Prior position.