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: How are the reserves, pursuant to section 1401 of the Regulations, which are relevant for purposes of computing the accumulating fund of a universal life insurance policy and of the related exemption test policy, to be calculated?
Position: The reserves should be computed in a reasonable manner and should follow the wording of the Regulations.
Reasons: The reserve calculations are not explicit for universal life insurance policies and therefore the assumptions that will need to be made should be reasonable in order to satisfy the requirements of the legislation.
XXXXXXXXXX 981019
Michèle Trotier
Attention: XXXXXXXXXX
March 15, 1999
Dear Sirs:
This is in reply to your letter of April 17, 1998 wherein you requested a technical interpretation with respect to the provisions of sections 307 and 1401 of the Income Tax Regulations for universal life insurance policies.
The income tax implications with respect to such policies can only be determined after a review of all the terms and conditions of a particular proposed product to be issued by a life insurance company to an identified policyholder. Should you wish to proceed with a request for an advance income tax ruling with respect to a particular product it should be submitted in the manner set out in Information Circular 70-6R3 dated December 30, 1996.
We would like to note, in the meantime, that reserves pursuant to section 1401 of the Income Tax Regulations which are relevant for purposes of determining the accumulating fund with respect to a particular life insurance policy should be computed in a reasonable manner by insurers. While we recognize that given the flexible terms of universal life insurance policies certain assumptions may be necessary in calculating the accumulating fund of the policy and of the related exemption test policy, where such assumptions are not reasonable the calculation may be subject to scrutiny by the Department.
As you know our colleagues at the Department of Finance are currently reviewing life insurance policyholder tax rules (including the exemption test) to better take into account the characteristics of innovative life products such as universal life insurance policies.
The foregoing comments are intended as a general discussion only and do not relate to any particular situation. While we hope our comments are of assistance to you they neither address all of the potential income tax implications nor do they constitute an advance income tax ruling and therefore are not binding on the Department in respect of a specific situation.
Your truly,
F. Lee Workman
Section Manager
Financial Institutions Section
Financial Industries Division
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