11 May 1992 Income Tax Severed Letter 9210640 - Split-dollar Insurance/Joint Ownership of Life Insurance

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.

CALU ANNUAL MEETING
                MAY 11, 1992

                 Question 7

JOINT-OWNERSHIP OF LIFE INSURANCE POLICIES

Where a split-dollar life insurance policy on the life of an employee or shareholder is jointly owned by the corporation and the employee or shareholder, will the Department confirm that no taxable benefit arises in the following circumstances?

(a) The corporation is the applicant and original owner of the policy. The corporation assigns specific rights under the policy to the employee or shareholder. The employee or the shareholder's portion of the premium is determined as the amount which he or she would have to pay as a premium for comparable rights available in the market under a separate insurance policy.

(b) The employee or shareholder is the applicant and original owner of the policy. The employee assigns specific rights under the policy to the corporation. The corporation's portion of the premium is determined as the amount which it would have to pay as a premium for comparable rights available in the market under a separate insurance policy.

                Department's Position
At the time specific rights under the policy are assigned
by the original owner of the policy, the original owner
would be disposing of an interest in the life insurance
policy and would be subject to the provisions of section
148 and paragraph 56(1)(j).  In addition, the fair market
value of the specific rights which are being assigned to
the employee or shareholder in excess of the consideration,
if any,  which would be paid by the employee or shareholder
for such rights would constitute a taxable benefit pursuant
to paragraph 6(1)(a) or subsection 15(1).   However, the
final determination of the income tax implications of such
assignments can only be made on a case by case review of
the terms of the particular insurance policy and the rights
which have been made available to someone other than the
original owner of the policy.

It is a question of fact whether or not an employee or a shareholder receives an additional benefit, subsequent to the above assignment, under a split-dollar insurance policy, which is to be included in income pursuant to paragraph 6(1)(a) or subsection 15(1) respectively. In determining whether an employee or a shareholder is in receipt of a benefit in a particular taxation year, the Department can confirm that no taxable benefit under 6(1)(a) or 15(1) will arise where the premium paid by the employee or the shareholder under the policy is equal to the premium for comparable rights available in the market under a separate insurance policy. Author: M. Trotier

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