1 August 1990 External T.I. 59785 F - Determination of an Insurance Policy as an Exempt Policy

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.

August 1, 1990

We are writing in response to your correspondence of March 7, 1990 wherein you requested the opinion of the Department regarding certain aspects of a proposed new  24(1)  which your company is currently developing.

We apologize for the delay in responding to your query.

Your initial query was with respect to the designation of the proposed policy as an investment  vehicle for the purpose of the income inclusion provisions of subsection 12.2(3) of the Income Tax Act (the "Act").  Subsection 12.2(3) of the Act requires certain amounts to be included in the income of a taxpayer in respect of an interest in a life insurance policy, which includes a disability policy, other than, inter alia, an insurance policy that is an "exempt policy" as that term is defined in paragraph 12.2(11)(a) of the Act and section 306 of the Income Tax Regulations.  The determination of a policy as an exempt policy is performed on an annual basis and is a question of fact determined at that time by reference to the terms of the particular policy.  consequently, it is not possible to determine in advance if any particular policy will be an exempt policy at some time in the future or that subsection 12.2(3) of the Act will not be applicable by virtue of the policy being exempt at the time.

Your second query relates to the determination of the amount to be included in the income of the insured upon termination of the policy.  We are unable to provide a determinative opinion, however, we would agree with your statement that there would be no amount included in the policyholder's income pursuant to subsection 148(1) and paragraph 56(1)(j) of the Act where the proceeds of disposition of the policy, as defined in paragraph 148(9)(a) of the Act, are less than the adjusted cost base of that policy. The determination of these  amounts is, as noted previously, a question of fact relative to the particular policy in question at the time of termination and cannot be determined in advance.

We trust that our comments are of assistance to you.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate