2096 Ruling 9609573 - ASSUMPTION REASSURANCE - TREATMENT OF POLICY LOANS

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 or not the amount paid by the insurer to the purchaser in respect of the assumption by the purchaser of obligations in an assumption reinsurance transaction and included in the income of the purchaser in the course of carrying its XXXXXXXXXX insurance business is net of the policy loans transferred?

Position:

Yes.

Reasons:

A policy loan is not a loan, it represents a prepayment of policy benefits and therefore reduces the insurer's obligations in respect of the XXXXXXXXXX insurance policies. (see E9528295) Repayments of policy loans will be included in the income of the purchaser.

XXXXXXXXXX							3-960957

Attention: XXXXXXXXXX

XXXXXXXXXX, 1996

Dear Sirs:

Re: Advance Income Tax Ruling
XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX requesting an advance income tax ruling on behalf of XXXXXXXXXX.

Unless otherwise indicated, all statutory references herein are to the Income Tax Act (the "Act").

You advised that to the best of your knowledge, none of the issues involved in the ruling request is being considered by a Tax Services Office and a Taxation Centre of Revenue Canada in connection with a tax return already filed and none of the issues is under objection or appeal.

Our understanding of the facts and proposed transactions is based on the information as described by you in the formal ruling request and letters of XXXXXXXXXX.

FACTS

1.XXXXXXXXXX is governed under the Insurance Companies Act (Canada) and is a "taxable Canadian corporation" and a "life insurer" within the meaning of subsection 89(1) and 248(1) of the Act, respectively. XXXXXXXXXX is a resident of Canada for purposes of the Act.

2. XXXXXXXXXX

PROPOSED TRANSACTIONS

5. XXXXXXXXXX

PURPOSE OF THE PROPOSED TRANSACTIONS

The purposes of the proposed transactions

XXXXXXXXXX

RULING GIVEN

Provided all relevant facts, proposed transactions and their purposes have been fully disclosed and, as summarized above, are accurate, we confirm that the approximate amount of XXXXXXXXXX in respect of the assumption XXXXXXXXXX of the obligations described in paragraph 7 above will be an amount received or receivable in the course of carrying on XXXXXXXXXX under sections 9 and 138 of the Act and will not include the amount of the policy loans transferred to XXXXXXXXXX as described in paragraph 9 above.

This ruling is given subject to the general limitations and qualifications set forth in Information Circular 70-6R2 and is binding on Revenue Canada, Customs, Excise, and Taxation provided that the proposed transactions are completed by XXXXXXXXXX. This ruling is based on the Act in its present form and does not take into account any proposed amendments. Except as expressly stated, our ruling does not imply acceptance, approval or confirmation of any income tax implications of the facts or proposed transactions.

Yours truly,

for Director,
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch