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 amendments to a universal life insurance policy that propose to add certain interest options can be considered so fundamental that they result in a disposition of the underlying policy.
Position: No.
Reasons: Factual determination.
XXXXXXXXXX 960815
Attention: XXXXXXXXXX
XXXXXXXXXX, 1996
Dear Sirs:
Re: Advance Income Tax Ruling Request
XXXXXXXXXX
This is in reply to your letter dated XXXXXXXXXX in which you have requested an advance income tax ruling on behalf of XXXXXXXXXX (the "policyholder") with respect to proposed amendments to the XXXXXXXXXX policy (the "XXXXXXXXXX policy"), her life insurance policy identified as XXXXXXXXXX policy number XXXXXXXXXX. We acknowledge receipt of the various submissions and documentation received the most recent of which was dated XXXXXXXXXX
Unless otherwise specified, all references to statute are to the Income Tax Act.
You advise that to the best of your knowledge and that of XXXXXXXXXX and the policyholder, none of the issues involved in the ruling request has been considered by a taxation services office or a taxation centre in connection with a tax return already filed, and none of the issues involved in the ruling request is the subject of any notice of objection or is under appeal.
Our understanding of the facts, proposed transactions and their purposes is as follows.
FACTS
1.XXXXXXXXXX is a "life insurance corporation" within the meaning of that term pursuant to subsection 248(1) of the Income Tax Act (the "Act"). XXXXXXXXXX was incorporated in XXXXXXXXXX pursuant to
XXXXXXXXXX
2.The policyholder is resident in Canada for income tax purposes. The policyholder acquired XXXXXXXXXX, bearing Policy Number XXXXXXXXXX. Such policy had a stated issue date of XXXXXXXXXX and a face amount of $XXXXXXXXXX. Effective XXXXXXXXXX Policy XXXXXXXXXX was converted to a XXXXXXXXXX policy, bearing Policy Number XXXXXXXXXX. Effective XXXXXXXXXX Policy Number XXXXXXXXXX was replaced by the XXXXXXXXXX policy bearing Policy Number XXXXXXXXXX. The face amount of the XXXXXXXXXX policy remained at $XXXXXXXXXX throughout the conversion and replacement. The policyholder's former husband is the insured life under the XXXXXXXXXX policy.
3.The XXXXXXXXXX policy is an adjustable, non-participating universal whole life insurance policy with flexible premiums and, you advise, is an "exempt policy", within the meaning assigned by subsection 306(1) of the Income Tax Regulations, for the purposes of section 12.2 of the Act. Adjustable refers to the ability of the policyholder to change the face amount of the XXXXXXXXXX policy within the limitations set out under its terms. Flexible premiums offer the policyholder options in meeting insurance costs subject to the payment of a specified minimum premium amount as described under the terms of the XXXXXXXXXX policy.
The XXXXXXXXXX policy is a non-endowment policy. Up to the policy anniversary at the Insured's Age 100, the death benefit is equal to the greater of
(i)the face amount plus the gross value as of the date of death of the insured, and
(ii)the Death Benefit factor (developed from the Income Tax Regulations to maintain cash value growth in the XXXXXXXXXX policy on a non-taxable accumulation basis) multiplied by the gross value as of the policy anniversary prior to the date of death of the insured.
XXXXXXXXXX
4.The XXXXXXXXXX policy offers only one XXXXXXXXXX option.
XXXXXXXXXX
PROPOSED TRANSACTIONS
5.XXXXXXXXXX proposes to offer a policy amendment (the "amendments") to the policyholder pursuant to which the policyholder may, with her consent and upon signing the amendment, take advantage of various XXXXXXXXXX "options".
XXXXXXXXXX
6. XXXXXXXXXX
7. XXXXXXXXXX
8.XXXXXXXXXX will offer the policyholder the opportunity to sign a policy amendment to her XXXXXXXXXX policy upon obtaining the requested rulings. If the policyholder signs the amendment it will then be implemented by XXXXXXXXXX with the effect that the XXXXXXXXXX policy will have been amended to include the XXXXXXXXXX options in the manner described in paragraphs 5 and 6 above.
9. XXXXXXXXXX
XXXXXXXXXX
(k)The amendments provide that in the event of a conflict between the policy and the text of the amendment, the amendment prevails.
PURPOSE OF PROPOSED TRANSACTIONS
10.The purpose of the proposed amendments is to provide the policyholder of the XXXXXXXXXX policy with the option of selecting new interest options in respect of the gross value which has accumulated under her policy.
XXXXXXXXXX
RULINGS GIVEN
Provided all relevant facts, proposed transactions and their purposes have been fully disclosed and, as summarized above, are accurate, we confirm the following:
A.The policyholder of the XXXXXXXXXX policy will not be considered to have disposed of an interest in her XXXXXXXXXX policy or to have become entitled to any amount of proceeds of disposition by reason only of the implementation of the proposed amendments to be made to the XXXXXXXXXX policy as described in paragraphs 5, 6 and 9 above for the purposes of subsection 148(1) of the Act.
B.By virtue of the application of paragraph 148(10)(d) of the Act the policyholder of the XXXXXXXXXX policy will not be considered to have disposed of an interest in her XXXXXXXXXX policy by reason only of the selection of one or more new interest options described in paragraph 6 above pursuant to the proposed amendments referred to in paragraphs 5 and 9 above.
This ruling is given subject to the general limitations and qualifications set forth in Information Circular 70-6R2 issued by Revenue Canada on September 28, 1990 and is binding on the Department provided the amendments to the XXXXXXXXXX policy are added to the policy on or before XXXXXXXXXX. This ruling is based on the Act in its present form and does not take into account the effects of any proposed amendments thereto.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy & Legislation Branch
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