5 May 2026 Roundtable, 2026-1089321C6 - 2026 CALU – Q.3 – Trusts and Life Insurance

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.

Principal Issues: 1. Whether subsection 105(1) is applicable in a situation where a Trust owns and pays the premiums of a life insurance policy on the life of Mrs. A, and Mr. B, a beneficiary of the trust, is named as the beneficiary of the policy. 2. Would CRA's position be different if Mr. B was the shareholder of a corporation (Opco) and Opco rather than Mr. B was the beneficiary of the Policy under which the Trust was the owner and premium payor?

Position: 1. Our view in respect of the application of subsection 105(1) remains as stated in CRA Document #2008-0301881E5. 2. It could be considered that the Trust confers a benefit on Opco by paying the premiums of the Policy of which Opco is the beneficiary.

Reasons: Previous positions.

CALU Roundtable – May 5, 2026

Question 3 - Trusts and Life Insurance

Background

In CRA Document #2008-0301881E5, dated October 19, 2009, written in French, the Canada Revenue Agency (“CRA”) was asked to consider a situation involving the ownership of a life insurance policy (the “Policy”) by a discretionary trust (the “Trust”) created under the laws of Québec and Ontario. There were a number of income and capital beneficiaries of the Trust, including Mr. B. The trust indenture specifically provided that the trustees had the authority to own and pay the premiums of the Policy and such premiums could be funded from the capital of the Trust. The Policy insures the life of Mrs. A, and Mr. B is named as the beneficiary of the Policy. The CRA was asked to comment on whether Mr. B could be assessed a taxable benefit under subsection 105(1) (footnote 1).

The CRA expressed the view that if the insurance premium is not paid as a distribution of the Trust’s capital to Mr. B or as a payment of the income on which Mr. B is taxed, it could consider the Trust to confer a benefit on Mr. B by paying the premiums of the Policy. The benefit would be equal to the amount of the premiums paid by the Trust and would be included in Mr. B’s income under subsection 105(1), whether the premiums were derived from the capital or income of the Trust.

Questions:

1. Can the CRA confirm that based on the same fact pattern described above (and where the trust was created under the laws of a common law province) that it continues to be of the same view that subsection 105(1) could apply to this fact situation.

2. Would CRA’s position be different if Mr. B was the shareholder of a corporation (“Opco”) and Opco rather than Mr. B was the beneficiary of the Policy under which the Trust was the owner and premium payor?

CRA Response

The situation considered involves a discretionary trust (the “Trust”) created under the laws of Ontario. Mr. B is one of a number of income and capital beneficiaries under the Trust. The Trust owns a life insurance policy (the “Policy”) which insures the life of Mrs. A, for which the Trust pays the insurance premiums, and for which Mr. B is the beneficiary. In addition, the trust indenture specifically provides that the trustees of the Trust have the authority to own and pay the premiums of the Policy and such premiums could be funded using the Trust’s capital.

Our view in respect of the application of subsection 105(1) remains as stated in CRA Document #2008-0301881E5. Specifically, if the insurance premiums are not paid as a distribution of the Trust’s capital in favour of Mr. B, or as a payment of income included in the computation of Mr. B’s income, it appears that, by the Trust paying the premiums of the Policy of which Mr. B is the beneficiary, it could be considered that the Trust confers a benefit on Mr. B. The amount of this benefit, which would generally be equal to the premiums paid by the Trust, would be included in Mr. B’s income under subsection 105(1), whether the premiums were paid out of the Trust’s capital or income.

In respect of the second scenario, Mr. B is a shareholder of Opco. However, Opco is not a beneficiary of the Trust. In this scenario, Opco, rather than Mr. B, is the beneficiary of the Policy under which the Trust is the owner and premium payor. It is our view that subsection 105(1) could also apply to Opco in this situation, even though Opco is not a beneficiary of the Trust. This is because subsection 105(1) refers to the value of all benefits to a taxpayer from or under a trust. There is no requirement in subsection 105(1) that the taxpayer who receives a benefit from a trust has to be a beneficiary of the trust. As a result, similar to the first scenario, it could be considered that the Trust confers a benefit on Opco by paying the premiums of the Policy of which Opco is the beneficiary.

That said, in either scenario, the determination as to whether or not a benefit is conferred to a taxpayer from or under a trust and the determination of the value of such benefit, as the case may be, are generally questions of fact that can only be determined following a review of all of the relevant facts pertaining to the particular situation.

Aleksandra Bogdan
2026-108932
May 5, 2026

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1. Unless otherwise stated, all references to a statute are to the relevant provision of the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended, (the Act), or, where appropriate, the Income Tax Regulations, C.R.C., c.945, as amended, (the Regulations).