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.
Principal Issues:
Is it possible for a foreign issued life insurance policy of a non-resident to qualify as an "exempt policy" (under 12.2(11)(a) and Regulation 306) where the person becomes a Canadian resident.
Position TAKEN:
It is possible.
Reasons FOR POSITION TAKEN:
The tests in Regulation 306 may be performed retrospectively and if they are satisfied, the policy will qualify.
940632
XXXXXXXXXX B.G. Dodd
April 6, 1994
Dear Sir:
Re: Non-Canadian Insurance Policies
Your File Number: 8808888
We are writing in reply to your letter dated March 7, 1994. All references to statute are to the Income Tax Act S.C. 1970-71-72,c.63 as amended consolidated to June 10, 1993 (the "Act") and references to regulations are to regulations made under the Act (the "Regulations").
You describe a situation in which a person who is a non- resident of Canada has an interest in an insurance policy from a non-Canadian insurance company which does not carry on business in Canada and the person subsequently becomes a Canadian resident and continues to hold the interest in the insurance policy. You enquire whether such a policy can qualify as an "exempt policy" as that term is defined in paragraph 12.2(11)(a) of the Act and section 306 of the Regulations.
Assuming the policy is a "life insurance policy" as defined in paragraph 138(12)(f) of the Act, it is our opinion that the circumstances you describe would not, in themselves, preclude such a policy from qualifying as an exempt policy. Such a policy could qualify provided the criteria in section 306 of the Regulations were satisfied.
While there are no special rules for dealing with this type of situation, it would be incumbent on the policyholder to demonstrate that the policy so qualifies. This would include the provision of satisfactory evidence that the life insurance policy satisfied the exempt policy tests in section 306 of the Regulations on the date of the first policy anniversary and continuously thereafter.
We also note that, subject to there being no change in wording upon enactment, in our opinion, proposed subsection 128.1(1)1 would apply to this type of situation. In this regard, it is our view 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: (a) would not be a "life insurance policy in Canada" as defined in paragraph 138(12)(g) of the Act; (b) would not have been "taxable Canadian property", as defined in subsection 248(1) of the Act, of the person prior to becoming resident in Canada; and (c) would be a property in respect of which, pursuant to proposed paragraph 128.1(1)(b) of the Act, a deemed disposition would occur upon the taxpayer becoming a Canadian resident.
While the application of proposed subsection 128.1(1) of the Act may affect the date on which such a policy was "last acquired" (as that expression is used, for example, in subsection 12.2(1) of the Act), it is our view that this will not affect the determination of the "accumulating fund" under section 307 of the Regulations which is relevant for purposes of the exempt policy tests in section 306 of the Regulations.
While we hope the foregoing will be of assistance to you, please note that our comments are general in nature and should not be construed as binding in respect of any particular situation.
Yours truly,
for Director
Financial Industries Division
Rulings Directorate
1 Proposed section 128.1 is included in the "Amendments to the Income Tax Act and Related Statutes - Draft Legislation and Explanatory Notes", issued by the Minister of Finance in August, 1993.
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