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.
THE TAX EXECUTIVE INSTITUTE 1993
Question # 21
Premiums in respect of a particular life insurance policy used as collateral security may be deducted for income tax purposes subject to the provisions of paragraph 20(1)(e.2) of the Income Tax Act. Is the "adjusted cost basis" calculated pursuant to paragraph 148(9)(a) of the Income Tax Act in respect of such a particular policy reduced by premiums deducted pursuant to paragraph 20(1)(e.2) of the Income Tax Act?
Response
The amount deductible pursuant to paragraph 20(1)(e.2) of the Income Tax Act is based on the lesser of the amount of the premiums payable under a particular policy and the net cost of pure insurance of such a policy. The net cost of pure insurance represents the portion of premiums relating to the insurance element of a policy.
Paragraph 148(9)(a) of the Income Tax Act does not contain any specific provisions reducing the adjusted cost basis by premiums deducted pursuant to paragraph 20(1)(e.2) of the Income Tax Act. We note, however, that it contains a provision which reduces the adjusted cost basis by the net cost of pure insurance of any life insurance policy (other than an annuity contract) acquired after December 1, 1982 whether or not premiums were deducted pursuant to paragraph 20(1)(e.2) of the Income Tax Act.
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