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.
932127
XXXXXXXXXX Michèle Trotier
(613) 957-3494
Attention: XXXXXXXXXX
September 20, 1993
Dear Sirs:
This is in reply to your letter dated July 21, 1993 wherein you requested our opinion as to what would be the fair market value for purposes of subsection 70(5.3) of the Income Tax Act ("Act") of an annuity owned by a corporation on the life of an individual.
While we would want to review a particular annuity arrangement before expressing any view with respect to the fair market value thereof it would appear that although a life annuity is a life insurance policy for purposes of the Act which is issued or effected upon the life of a person it is not a policy under which the life of the person is insured. Accordingly we question whether paragraph 70(5.3) of the Act would have application with respect to a life annuity and provide the potentially anomalous result that would occur given the absence of a cash surrender value for such instruments.
In your letter you alluded to a back to back insurance strategy which provided for the purchase of a term life insurance policy providing a death benefit equal to the premium paid to acquire the annuity.
While we have not as yet reviewed any such arrangements it is not clear to us what the commercial purpose would be for such an arrangement. As a comment it would seem that consideration should be given to the possible application of the general anti-avoidance provision should the arrangement be structured to produce an inappropriate income tax result. This might be the case, for example, if the purpose of the arrangement is to provide an addition to the capital dividend account pursuant to paragraph 89(1)(b) of the Act in circumstances where the death benefit could be considered a return of an investment (ie the cost of the annuity).
While we are unable to provide a specific response to your question we trust that the above comments will be of assistance. They do not, however, constitute an advance income tax ruling and therefore are not binding on the Department with respect to a particular situation.
Yours truly,
Section Chief Financial Institutions Financial Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1993
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1993
Email this Content