29 October 1996 External T.I. 9621665 - 160(1) ON DEATH OF TAXPAYER

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 160(1) apply:

1. when the taxpayer dies and the child of the taxpayer is the beneficiary of the life insurance policy and

2. when a family member of the deceased makes application to the courts for the estate to provide additional maintenance and support as permitted under a provincial statue such as the Family Relief Act of Alberta?

Position:

1. No.

2. Should not be an issue.

Reasons:

1. While the deceased is the policyholder, the proceeds of a life insurance policy belong to the name beneficiary upon the death of the policyholder. Since the deceased never has legal entitlement to the proceeds, the receipt of proceeds by the beneficiary does not constitute a transfer of property and

2. The responsibility of an exectuor/executrix is, prior to making any distributions out of an estate to the beneficiaries, to discharge any liabilities. Section 159 of the Act requires that an execturo request a clearance certificate from the Minister prior to any distributions of amounts from the estate. The application of 160(1) should not arise.

		962166
XXXXXXXXXX	J.A. Szeszycki

Attention: XXXXXXXXXX

October 29, 1996

Dear Sirs:

Re: Tax Liability Under Subsection 160(1) of the Income Tax Act

This is in reply to your letter dated June 12, 1996, in which you requested our views as to whether subsection 160(1) of the Income Tax Act (the "Act") has application in certain circumstances involving the receipt of funds by family members. We apologize for the delay in providing you with a response.

Subsection 160(1) of the Act, as you summarized in your letter, allows the Department to assess a non-arm's length transferee who has received property from a taxpayer for less than fair market consideration, at a time when the transferor has an outstanding income tax liability. You have asked our opinion on whether

1.In circumstances where the taxpayer becomes deceased and the child of the taxpayer is the beneficiary of a life insurance policy for which the taxpayer was the policyholder, the Department would be entitled to issue an assessment against the beneficiary under subsection 160(1) of the Act.

2.In circumstances where a family member of the deceased taxpayer has made application to the courts for the estate to provide additional maintenance and support, as permitted under a provincial statute such as the Family Relief Act of Alberta, an assessment under subsection 160(1) of the Act can be issued by the Department against that family member.

Our Comments

With regard to the first set of circumstances, it is our view that in order for subsection 160 to apply, there must have been property owned by one individual (the transferor) that is transferred to another individual (the transferee) who is either a spouse, a person under 18 years of age or a person with whom the transferor does not deal at arm's length. While the deceased individual may have been the policyholder, the proceeds of a life insurance policy belong to the named beneficiary upon the death of the policyholder in the circumstances set out in 1. above. Since the deceased never has legal entitlement to the proceeds, the receipt of those proceeds by the beneficiary would not constitute a transfer of property and, therefore, in our view, subsection 160(1) of the Act could not be invoked to authorize an assessment against the beneficiary.

With regard to the second scenario, it is our understanding of the responsibilities of the executor/executrix as to the disposition of an estate that, prior to making any distributions out of an estate to the beneficiaries, the deceased's liabilities are determined and then discharged using the estate's known resources. With respect to the deceased's outstanding income tax liabilities, section 159 of the Act requires that the executor ("responsible representative") request a clearance certificate from the Minister, prior to any distribution of amounts from the estate. As a result, the application of subsection 160(1) to these circumstances does not become an issue.

We trust our comments will be of assistance to you.

Yours truly,

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