15 February 1995 External T.I. 9433865 - DISPOSITION OF LIFE INSURANCE POLICY ON DEATH

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:Does subsection 148(8) apply where, on the death of the policyholder, the policy is transferred to the policyholder's child under the will.

Position TAKEN: Appears not.

Reasons FOR POSITION TAKEN: Issue previously addressed.

		943386
XXXXXXXXXX	B.G. Dodd

Attention: XXXXXXXXXX

February 15, 1995

Dear Sirs:

Re: Disposition of a Life Insurance Policy

This is in reply to your letter dated December 23, 1994. All references to statute are to the Income Tax Act.

You have requested confirmation that the provisions of subsection 148(8) would apply in a situation where a parent is the policyholder of a life insurance policy on the life of his child and on the death of the parent, the policy is transferred to the child pursuant to the terms of the parent's will. In particular, you are seeking confirmation that subsection 148(8) would apply such that on his death, the parent would be deemed to have disposed of his interest in the policy for proceeds of the disposition equal to the adjusted cost basis to the parent immediately before his death, and that the child would be deemed to have acquired the interest at a cost equal to that same amount.

While the laws of the relevant province in a specific factual situation might have a bearing on the question, it appears to us that, in general, subsection 148(8) would not apply in this situation. Whereas the transfer referred to in paragraph 148(8)(a) is that of an interest in a life insurance policy from the policyholder to his child, in the situation described above, the interest in the policy passes from the policyholder (the parent) to his estate, and then to the child. The first transfer, from the parent to the estate, is not a transfer from a policyholder to his child, and the second transfer, from the estate, now the policyholder, to the child, is not a transfer to the policyholder's (i.e., the estate's) child.Insofar as subsection 148(8) would not apply in such a situation, it is our view that the provisions of subsection 148(7) would apply (except, for example, where the policy is not an "exempt policy", as defined in subsection 12.2(11), in which case paragraphs 148(2)(b) and (c) would apply).

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 on the Department in respect of any particular situation.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate
Policy & Legislation Branch