1 August 1990 Internal T.I. 59217 F - Disposition of Insurance Business Carried on in Canada

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.

Attention: 19(1)

August 1, 1990

19(1)

This is in reply to your letter dated December 5, 1989 requesting a technical interpretation of the phrase "ceased to carry on all or substantially all of an insurance business" as used in subsections 138(11.5), 138(11.92), 138(11.94), 219(5.1) and 219(5.2) of the Income Tax Act (the "Act").  We apologize for the delay in responding.

Subsection 138(11.5), (11.92) and (11.94) deal with the disposition of an insurance business carried on in Canada and subsection 138(11.92) also deals with the disposition of a line of business of an insurance business ("a line of business") carried on in Canada.  Subsections 138(11.5) and (11.94) require that the transferor transfer all or substantially all of the property used in the year, or held in the year, in the course of carrying on that insurance business in Canada in that year and that the transferee assume or reinsure all or substantially all of the obligations of the transferor that arose in the course of carrying on that insurance business in Canada.  Subsection 138(11.92) has a similar requirement with respect to the assumption of obligations in respect of an insurance business or a line of business.

Subsections 219(5.1) and (5.2) deal with a non-resident ceasing to carry on all or substantially all of an insurance business in Canada.

As stated in paragraph 15 of Interpretation Bulletin IT-507 with respect to eligible small business corporations, it is the Department's view that "all or substantially all" means 90 percent or more and therefore we confirm your view that the point in time referred to in the above subsections of the Act is the point in time when the insurer has ceased to carry on 90 percent or more of an insurance business or a line of business, as the case may be.

As you can appreciate whether an insurer has ceased to carry on "all or substantially all of an insurance business" or "a line of business" for the purposes of the provisions noted above is a question of fact which can only be determined after the review of all of the particular circumstances.

It is our view that the following factors would have to be considered in determining whether an insurer has transferred all or substantially all of an insurance business or a line of business:

1.     Whether the insurer ceases to write new business and provides written notice of the same to the Minister of Finance (the "Minister") pursuant to subsection 182(1) of the Canadian and British Insurance Companies Act ("CABICA").

2.     Whether the insurer ceases to be registered with the Department of Insurance as required by section 73 of CABICA.    

3.     Whether the insurer has requested and received the release of funds held on deposit as security by the Receiver General.  In this regard, pursuant to subsection 182(1) of CABICA, when an insurer has ceased to transact business and has given written notice to that effect to the Minister, the funds held on deposit by the Receiver General shall not be delivered to the insurer until all of its outstanding risks are surrendered or disposed of pursuant to an assumption reinsurance contract to the satisfaction of the Minister.  When applying for the refund of a portion of the funds on deposit, the insurer must file with the Minister a list of policyholders who have not surrendered their policies or who are not covered by a contract of assumption reinsurance.

4.     If the non-resident insurer is registered under the Foreign Insurance Companies Act ("FICA"), whether the requirements with respect to the release of all or substantially all of the assets pursuant to subsection 45(2) of FICA have been satisfied and whether the requirements with respect to the release of all or substantially all of the deposits held by the Receiver General pursuant to subsection 45(5) of FICA have been satisfied.

5.     Whether the insurer has communicated to policyholders that a transfer of their policies will occur in accordance with subsection 182(2) of CABICA.

6.     The non-resident insurer has obtained the surrender of all or substantially all of its outstanding policies in Canada or has transferred those policies to a company registered under FICA or a corporation registered under CABICA which transfer has been communicated to policyholders.

7.     Whether all or substantially all of the accounts receivable have been collected or sold and all or substantially all of the accounts payable have been paid or assumed by the transferee in respect of that particular insurance business or a line of business.

8.     Whether the transferor and the transferee enter into an agreement such that the transferee will assume and agree to pay to the exoneration and discharge of the transferor all or substantially all of the liabilities of the transferor under all contracts of insurance, co-insurance and reinsurance written and issued in respect of an insurance business or a line of business.

The determination of "all or substantially all" may be particularly difficult in a situation involving run-off. The number of policies in force, claims, both actual and anticipated, reinsurance arrangements and the degree of corporate activity (eg. employees, premises) may have particular significance in addition to the factors noted above.  In addition it will be necessary to determine the appropriate base period against which the 90% comparison is to be made.

While we hope our comments are of assistance to you we are unable to provide a definitive response dealing with what amounts to a question of fact.  Each particular case will require a reasonable assessment of the relevant factors.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate