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:
Whether dividends received from an insurance corporation exempt from Part I tax under paragraph 149(1)(t) would qualify for the deduction under subsection 112(1) when a portion of the insurance corporation's income is subject to tax by virtue of subsection 149(4.1).
Position:
No.
Reasons:
It is our view that an insurance corporation that qualifies for a full or partial exemption from Part I tax is not a "taxable Canadian corporation" as defined in subsection 89(1). Accordingly, the recipient would not be entitled to the intercorporate dividend deduction under subsection 112(1).
5-960400
XXXXXXXXXX J. Leigh
Attention: XXXXXXXXXX
March 28, 1996
Dear Sirs:
Re: Dividends Paid by a Farmer's and Fisherman's Insurer
This is in reply to your facsimile of January 17, 1996 concerning dividends paid by an insurance corporation that is exempt from Part I tax pursuant to paragraph 149(1)(t) of the Income Tax Act (the "Act"). We offer the following comments.
Paragraph 149(1)(t) of the Act provides an exemption from Part I tax on the taxable income for a period of an insurer who was engaged only in the business of insurance. In order to qualify for the exemption, at least 25% of the total of the gross premium income (net of reinsurance ceded) earned in the period by the insurer and, where the insurer is not an insurer prescribed by subsection 4802(2) of the Income Tax Regulations, by certain affiliated insurers must be in respect of the insurance of farm property, property used in fishing or residences of farmers or fishermen ("fishing or farming risks"). Where paragraph 149(1)(t) is applicable, subsection 149(4.1) limits the exemption to that portion of the insurer's taxable income for the taxation year that the insurer's gross premium income (net of reinsurance ceded) earned for the year from the insurance of fishing or farming risks is of its total gross premium income (net of reinsurance ceded) earned for the year. However, if more than 90% of the total of the gross premium income (net of reinsurance ceded) earned by the insurer and, where applicable, by certain affiliated insurers for the taxation year are in respect of insurance of fishing or farming risks, subsection 149(4.2) provides that subsection 149(4.1) will not apply and therefore all of the insurer's taxable income for the taxation year will be exempt from Part I tax.
Where an insurer that qualifies for the exemption under paragraph 149(1)(t) pays out dividends, such dividends would normally be considered "taxable dividends" as defined in subsection 89(1) of the Act. Under subsection 82(1), the recipient is required to include the amount of taxable dividends received in computing income.
Subsection 112(1) of the Act permits the recipient of a taxable dividend paid by a taxable Canadian corporation to claim an offsetting deduction in computing taxable income. The term "taxable Canadian corporation" is defined in subsection 89(1) to mean a corporation that is a Canadian corporation and that is not exempt from tax under Part I by virtue of a statutory provision. It is our view, however, that an insurer exempt from Part I tax under paragraph 149(1)(t) does not meet this definition, notwithstanding that a portion of its income may be subject to tax by virtue of subsection 149(4.1). Accordingly, the recipient would not be entitled to claim the deduction under subsection 112(1) in respect of any taxable dividends received from such an insurer.
You express the view that dividends paid by an insurance corporation should retain their status as being either exempt dividends or taxable dividends, depending on whether they were paid out of exempt income or taxable income. If the insurer pays the dividends out of taxable income, the recipient should qualify for the deduction under subsection 112(1). Please note that in order to accomplish the tax treatment you are suggesting, amendments to the Act would be required. We will bring this matter to the attention of the Department of Finance for their consideration.
We trust that the above comments are of assistance.
Yours truly,
Chief
Financial Institutions Section
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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