9 June 1995 External T.I. 9501295 - UNIVERSAL LIFE POLICY - VALUE FOR DONATION.

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.

RULINGS DIRECTORATE
CORRESPONDENCE SUMMARY

Principal Issues:

Whether termination charges with respect to a universal life insurance policy are to be taken into account for purposes of determining the FMV of a gift of that policy to a charitable organization.

Position TAKEN:

Yes.

Reasons FOR POSITION TAKEN:

	Terminations charges represent additional charges borne 	by the policyholder with respect to an early redemption 	of the policy. Valuation principles (discussed and 	confirmed by Al Jones of Valuation Services) would 	require that the value of that policy be reduced by 	these charges in order to reflect what the policy would 	bring in terms of money. The FMV should reflect an 	amount the charitable organization would receive on the 	assumption that they would cash in the policy on the day 	of transfer. Contingencies or intentions of the donee 	organization would not influence this value.

		950129
XXXXXXXXXX	G. Donell

Attention: XXXXXXXXXX
June 9, 1995

Dear Sir:

Re: Cash Surrender Value of a Universal Life Policy

This is in reply to your letter of December 12, 1994 in which you have asked us whether termination charges, applicable with respect to an early redemption of a universal life insurance policy, are to be taken into account for purposes of determining the fair market value of a gift of that policy to a charitable organization. In addition you have questioned the departmental basis for the valuation of life insurance policies using the cash surrender value. In your view, the investment fund of the universal life policy is more representative of fair market value. We apologize for the delay of our response.

The definition of "total charitable gifts", in subsection 118.1(1) of the Act contain, for the purpose of establishing the amount eligible for an individual's charitable donation tax credit, the words "...the total of all amounts each of which is the fair market value of a gift...". Identical wording may be found in paragraph 110.1(1)(a) of the Act with respect to gifts by a corporate donor.

The department's position with respect to donations of life insurance policies is outlined in Interpretation Bulletin IT244-R3 titled, "Gifts by individuals of Life Insurance Policies as Charitable Donations", (September 6, 1991). The comments in that bulletin are equally applicable to corporate donors. As explained in that bulletin a transfer of an insurance policy to a charitable foundation or organization registered with the Minister of National Revenue could qualify as a charitable donation where there has been an absolute assignment of the policy to the charity and where no right, privilege, benefit or advantage can accrue to the donor as a result of the gift.

The Department's position as indicated in IT-244R3 is that generally the fair market value of an insurance policy at a particular time is the amount the recipient would receive if the policy was surrendered at that time. Accordingly in our view the termination charges would be taken into account in determining the fair market value of the policy at the time the gift is made.

We trust that the above comments are of assistance to you.

Yours truly,

Chief
Financial Institutions Section
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy & Legislation Branch