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.
RULINGS DIRECTORATE
CORRESPONDENCE SUMMARY
Principal Issues:
Whether policy dividends received on an exempt policy are subject to tax.
Position TAKEN:
Yes, although the amount to be included in income will depend upon other factors such as the ACB of the respective policy.
Reasons FOR POSITION TAKEN:
Legislation.
952142
XXXXXXXXXX G. Donell
September 11, 1995
Dear Sir:
Re: Life Insurance Policies
This is in reply to your letters of July 21 and August 21, 1995 in which you have asked us to confirm that life insurance policies issued before December 2, 1982 enjoy "tax-favoured treatment" in reference to policy dividends received.
We confirm that life insurance policies issued prior to December 2, 1982 do enjoy limited tax-favoured treatment not available with respect to policies issued after December 1, 1982. For example pre-December 2, 1982 policies are not generally subject to tax upon the annual accrual of investment income within a policy nor are they subject to tax on the proceeds received on the consequence of the death of an individual whose life was insured under the policy. Distributions from a life insurance policy however, regardless of the date of issue, are taken into account in determining whether an amount is to be included in an individual's income. The ultimate determination is dependent upon a multitude of factors including cumulative premiums paid and previous distributions. Distributions would include amounts received upon the surrender of a policy, policy loans and policy dividends. Policy dividends do not result in tax consequences however where the dividends are applied to offset premiums or used to repay a loan under the policy.
In your letter you refer to a "T5" information slip issued by XXXXXXXXXX to you with respect to your 1994 taxation year. The determination of amounts to be included in a policyholder's income generally require information that is available only in the accounts of the insurer. Accordingly we would recommend that you request specific details about the amount in question from your insurer.
We trust that the above comments are of assistance to you.
Yours truly,
Chief
Financial Institutions Section
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
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