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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
THE CONFERENCE FOR ADVANCED LIFE UNDERWRITING
1993 Annual Conference
Question 4
Non-Residents
(a) Does section 128.1 apply to cause a deemed disposition of life insurance policies purchased outside of Canada by immigrants to Canada?
(b) If section 128.1 does apply:
(i) How would fair market value of the interest in the policy be
determined?
(ii) Would a grandfathered non-exempt policy lose its grandfathered
status as a result of the deemed disposition and reacquisition?
(iii) What would the accumulating fund of this policy be for purposes
of determining whether it qualifies as an exempt policy and
reporting income on disposition or under the accrual rules?
Response
Proposed section 128.1 is included in the draft legislation contained in Amendments to the Income Tax Act and Regulations, dated December 1992, issued by the Minister of Finance. Our response is subject to the wording of the draft remaining unchanged upon enactment into law.
(a) It is our opinion that a life insurance policy issued or effected upon the life of a person who was a non-resident of Canada at the time the policy was issued or effected would be a property in respect of which, pursuant to proposed paragraph 128.1(1)(b), a deemed disposition would occur upon the person becoming a Canadian resident.
(b) (i) Factors to be considered in determining the fair market value
of an interest in a life insurance policy are set out in
paragraphs 40 and 41 of Information Circular No.
89-3.
(ii) On the basis that a grandfathered non-exempt policy is a
non-exempt policy which was last acquired before
December 2, 1982, it is our view that grandfathered status
will be lost where proposed paragraph 128.1(1)(c) deems the
property to be acquired at the time the person becomes a
Canadian resident. This deeming provision applies for all
purposes of the Act, including sections 12.2 and 148.
(iii) The accumulating fund of such a policy will be determined
in the usual manner under section 307 of the Income Tax
Regulations. Note that while the policy is not a "life
insurance policy in Canada" for purposes of proposed
section 128.1, under assumptions to be made for purposes
of the accumulating fund determination in paragraph 307(1)(b)
of the Regulations, the policy is assumed to be a "life
insurance policy in Canada".
Question 4
It is also noted that the date on which a policy is "last acquired" is not a factor in determining the accumulating fund.
Prepared by B. Dodd May 17, 1993
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