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(7) or subsection 107(2) apply when a "personal trust" distributes a life insurance policy to a beneficiary in satisfaction of the beneficiary's capital interest.
Position TAKEN:
Subsection 107(2) applies.
Reasons FOR POSITION TAKEN:
Same position taken in EC4600. Subsection 107(2) is not restricted to distributions of capital property.
964140
XXXXXXXXXX G.W. Keable
(613) 957-2046
Attention: XXXXXXXXXX
March 2, 1998
Dear XXXXXXXXXX:
Re: Technical Interpretation Request
This is in reply to your request for a technical interpretation on whether the provisions of subsection 107(2) or subsection 148(7) of the Income Tax Act (the "Act") will apply to the distribution of a life insurance policy to the beneficiary of a trust in the following hypothetical situation.
1) The trust is an inter vivos trust which is resident in Canada and has one (income and capital) beneficiary.
2) The trust is the owner and beneficiary of a life insurance policy.
3) The beneficiary of the trust is resident in Canada and is the person whose life is insured under the life insurance policy.
4) The trust is to be wound up under the terms of the trust document.
5) The trust is a "personal trust" as defined in subsection 248(1) of the Act and subsection 107(4) of the Act does not apply to the distribution of property from the trust.
6) The trust distributes the life insurance policy to the beneficiary in satisfaction of the beneficiary's capital interest in the trust.
Although subsection 148(7) will apply to certain non-arm's length transfers of a life insurance policy, it is our view that, in the hypothetical situation described above, the transfer of the life insurance policy will be governed by subsection 107(2) which provides a rollover on the distribution of property from a personal trust to a beneficiary in satisfaction of all or part of the beneficiary's capital interest in the trust. Consequently, the trust will be deemed to have disposed of the policy for proceeds of disposition equal to its cost amount ("adjusted cost basis" as defined in subsection 148(9)) and the beneficiary will be deemed to have acquired the policy at the same amount.
The above comments are provided in accordance with paragraph 22 of Information Circular 70-6R3.
Yours truly,
for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch
.../cont’d
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