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.
5-902908
Dear Sirs:
We are writing in reply to your correspondence of October 11, 1990 concerning certain insurance policies which provide for disability coverage and, more particularly, the determination of the exempt status and the adjusted cost base of such policies. In circumstances where a policy does not provide for a death benefit it is not possible to calculate the adjusted cost base of the policy nor formulate an exemption test policy against which the policy may be compared for the purpose of sections 148 and 12.2 of the Income Tax Act (the "Act") respectively. Accordingly, it would appear that a disability policy would not qualify as an "exempt policy" within the meaning of paragraph 12.2(1)(c) of the Act.
In view of these limitations you have suggested that, based upon comparison with other life insurance policies, the particular policy under consideration should be considered an "exempt policy" within the spirit of the Income Tax Regulations. You have also suggested the use of the Commissioners' Individual Disability Table `A' in conjunction with the CIA 1969-75 Mortality Table in the determination of the net cost of morbidity in the calculation of the adjusted cost base of the particular policy.
Although we appreciate the difficulties encountered in this type of situation, we are unable to provide an opinion in respect of the "spirit" of the Income Tax Regulations nor are we able to sanction the use of actuarial tables other than those specifically prescribed in the Regulations.
Should you have specific recommendations for amendment to the Income Tax Act you may wish to make a representation directly to the Department of Finance as it is that department which is responsible for the formulation of the various provisions of the Income Tax Act and Regulations pertaining to life insurance policies.
We hope our comments are of some assistance to you,
for DirectorFinancial Industries DivisionRulings Directorate
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