15 January 1998 External T.I. 9729345 - GIFT OF LIFE INSURANCE POLICY TO 2 CHARITIES

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:

1. Should an advance income tax ruling be issued in respect of a completed transaction? A review of the life insurance policy submitted indicates that XXXXXXXXXX entered into a life insurance contract (policy number XXXXXXXXXX) with XXXXXXXXXX. The owner of the policy is XXXXXXXXXX. The coverage was for $XXXXXXXXXX and the annual premium is $XXXXXXXXXX. The effective date of the policy was XXXXXXXXXX.

2. Whether a life insurance policy assigned to two registered charities constitutes a charitable donation.

Position:

1. No. In accordance with paragraph 7 of Information Circular 70-6R3, we are unable to provide an advance income tax ruling since it is in respect of a completed transaction. I telephoned XXXXXXXXXX, on December 19, 1997, and confirmed that the insurance policy had already been purchased by XXXXXXXXXX and assigned to XXXXXXXXXX had a copy of IC70-6R3 and agreed that since the transaction referred to in his letter had already been partially completed, no advance tax ruling could be issued. I indicated that his cheque would be returned to him and we would provide him with general comments; however, these comments would not be binding on the Department. XXXXXXXXXX agreed with this course of action.

2. Factual determination. Generally the answer would be yes as long as the insurance company is advised of the assignment, and the policy is assigned absolutely.

Reasons:

This file is similar to file 9502945

XXXXXXXXXX

972934
XXXXXXXXXX G. Moore

January 15, 1998

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling Request
Gift of Life Insurance Policy to Two Registered Charities

This is in reply to your letter of October 28, 1997, in which you requested an advance income tax ruling regarding the donation of a single life insurance policy to more than one registered charity.

You describe a situation in which an individual is presumed to have gifted his or her term life insurance policy to two registered charities and has named both charities as beneficiaries under the policy. Specifically, you have asked whether the gift of a life insurance policy by an individual under these circumstances will qualify as a charitable donation along with the annual premium in respect of the gifted policy.

As discussed during the telephone conversation (Moore/XXXXXXXXXX) of December 19, 1997, in accordance with paragraph 7 of Information Circular 70-6R3, Advance Income Tax Rulings, dated December 30, 1996, we are unable to provide an advance income tax ruling because the transaction has been completed. We can, however, offer the following general comments.

Our Comments

A gift, including a gift of life insurance policies, is a voluntary transfer of real or personal property from a donor, who must freely dispose of his or her property, to a donee, who receives the property given. As indicated in paragraph 1 of IT-244R3, Gifts by Individuals of Life Insurance Policies as Charitable Donations, if a life insurance policy has been absolutely assigned to the donee and the donee has become the registered beneficiary of the policy, a gift of a life insurance policy will qualify as a charitable donation pursuant to subsection 118.1(1) of the Income Tax Act (the "Act"). Paragraph 3 of the above-mentioned bulletin provides comments on the method of calculating the amount of the gift.

It is our view that the designation of a registered charity as an irrevocable beneficiary of a life insurance policy, would not, by itself, be sufficient for the gift to qualify as a charitable donation pursuant to subsection 118.1(1) of the Act. This is because the act of naming a beneficiary of a life insurance policy does not involve a transfer of property and therefore, the beneficiary does not have an interest in the policy. Only an absolute assignment of a life insurance policy will result in a transfer of a life insurance policy to a beneficiary or beneficiaries. In order to absolutely assign a life insurance policy, the donor must transfer absolutely, unconditionally, and otherwise than as a security, all rights, title and interest in the policy. If a life insurance policy is assigned to two or more registered charities and the requirements set out in paragraphs 1 to 4 of IT-244R3 are otherwise met, then such an assignment would generally qualify as a gift for purposes of the charitable donation tax credit. However, as noted, it is a question of fact whether or not there has been an assignment of a life insurance policy to more than one registered charity in order to qualify for the charitable donation tax credit. If a life insurance policy has been assigned to more than one registered charity, the donees are responsible for payment of the premiums in respect of the policy. An amount donated to enable the donees to pay the subsequent premium amounts of the life insurance policy may qualify as a charitable gift if the conditions in paragraph 2 of IT-244R3 are met.

Your deposit will be returned to you under separate cover. We trust our comments will be of assistance to you. Please note, however, that these comments represent our opinion of the law as it applies generally and accordingly, are not binding on the Department.

Yours truly,

John F. Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch