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:
whether the donation of a whole life insurance policy to a charity will qualify as a gift where the donor retains the right to the accumulated dividends (see telephone call: the issue of whether the policy can be shared between charities was not really his question)
Position TAKEN:
no
Reasons FOR POSITION TAKEN:
Position taken in prior correspondence e55294 and IT-244R3 on the basis that it is a gift " with strings attached" in that the donor receives the benefit from the accruing value in the CSV of the policy
A. Humenuk
XXXXXXXXXX 933590
Attention: XXXXXXXXXX
June 6, 1994
Dear Sirs:
Re: Gift of a Life Insurance Policy
We are replying to your letter of December 2, 1993 in which you ask whether amounts paid to a charity under a proposed split dollar life insurance arrangement would be deductible to a corporate donor. We appologize for the delay in providing our response.
As we understand it, the arrangement which was proposed to you by a representative of a life insurance company is structured as follows:
(a)A corporate donor purchases a large whole life insurance policy in respect of one of its key employees.
(b)The corporation gifts the policy to the charity so that the charity becomes the registered owner of the policy and the beneficiary of the face amount of the policy while the corporation retains the right to any accumulated dividends payable on the policy.
(c)The annual premiums are paid by the corporation, using the accumulated dividends to the extent available.
(d)On the death of the employee, the charity receives the face value of the policy and the corporation receives the remainder of the proceeds from the policy which the representative suggests will amount to the value of all premiums paid in respect of the policy.
The Department's position in respect of a gift of a life insurance policy is outlined in Interpretation Bulletin IT-244R3 "Gift by Individuals of Life Insurance Policies as Charitable Donations". While the comments in that bulletin are directed primarily to individuals, the comments, with the possible exception of the comment concerning valuation of the policy at the time it is transferred, also pertain to gifts by a corporation. The following comments apply equally to a split dollar insurance gifting arrangement with an individual or with a corporation.
As stated in paragraph 1 of the bulletin, the transfer of a policy will only be considered a gift for the purposes of subsection 118.1(1) or paragraph 110.1(1)(a) of the Act where no right, privilege, benefit or material advantage accrues to the donor or to a person designated by the donor. Accordingly, where the donor retains a right to the accumulated dividends receivable in respect of the policy it is our view that the transfer does not constitute a gift. With respect to a gift of the amount required to pay the premiums on a policy transferred in this manner, it is the Department's position that a donor will benefit from the donation of premiums because of the donor's interest in the policy and thus the donation of premiums would not constitute a gift.
As a result, it is our view that the donation of neither the policy nor the premiums required to maintain such a policy in the circumstances you describe would constitute a gift for purposes of either paragraph 110.1(1)(a) or subsection 118.1(1) of the Act.
We trust our comments will be of assistance to you.
Yours truly,
J. A. Szeszycki
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
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