10 October 2003 Roundtable, 2003-0036865 F - TRANSFER DE POLICE D'ASSURANCE

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15(1)

Also released under document number 2003-00368650.

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This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.

Principal Issue: [TaxInterpretations translation]

Must a shareholder include a benefit in income if a corporation transfers a critical illness policy that is an accident and sickness policy to the individual without consideration?

Position:

Yes, for an amount equal to the FMV of the policy.

Reason:

The transfer is subject to subsection 15(1) of the Act.

FINANCIAL PRODUCTS ROUNDTABLE
APFF - CONFERENCE 2003

Question 7

Transfer of a critical illness policy

A private corporation acquires a critical illness policy on the life of one of its shareholders. The benefit is payable to the policyholder. The policy has a term of 10 years. The corporation chooses to take the "return of premium" option at maturity and, accordingly, pays an additional premium. This option entitles the corporation to a full refund of all premiums paid during the policy period if no claim has been made.

The corporation pays the premiums for nine years. In the 10th year, the corporation assigns the insurance policy to the shareholder without consideration. The shareholder pays the premium due for the 10th year. At the end of the 10th year, the shareholder receives a full refund of all premiums paid during the term of the policy.

Assuming the policy is a sickness or accident policy, what are the tax consequences of transferring the policy?

CCRA Response

It is the CCRA's view that subsection 148(7) does not apply to the transfer of a critical illness policy that is an accident or sickness policy. However, a shareholder who acquires such a policy from the shareholder’s corporation for less than fair market value will be required by virtue of subsection 15(1) to include in computing income an amount equal to the excess of the fair market value of the critical illness policy over the consideration paid.

In determining the fair market value of such a policy, we are of the view that the age and health of the insured, the amount of refundable premiums and the amount of premiums paid at the date of transfer will be among the factors to consider.

Louise J. Roy
October 10, 2003
2003-003686

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Text of Severed Letter

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

PRINCIPALE QUESTION:

Un actionnaire doit-il inclure un avantage dans le calcul de son revenu si une société lui transfert sans contrepartie une police d'assurance de maladies graves qui est une police d'assurance contre la maladie ou les accidents?

Position Adoptée:

Oui pour un montant égal à la JVM de la police.

RAISON POUR POSITION ADOPTÉE:

Le transfert est sujet au paragraphe 15(1) de la Loi.

TABLE RONDE SUR LES PRODUITS FINANCIERS
APFF - CONGRÈS 2003

Question 7

Transfert d'une police d'assurance contre les maladies graves

Une société privée acquiert une police d'assurance contre les maladies graves sur la tête d'un de ses actionnaires. La prestation est payable au titulaire. La police a une durée de 10 ans. La société choisit de prendre l'option "remboursement de primes" à l'échéance et elle doit payer une prime additionnelle. Cette option lui accorde le remboursement intégral de toutes les primes payées durant la période assurée si aucune réclamation n'a été faite.

La société paie les primes durant neuf années. Au cours de la 10ème année, la société cède la police d'assurance à l'actionnaire sans contrepartie. L'actionnaire paie la prime due pour la 10ième année. À la fin de la 10ième année, l'actionnaire reçoit le remboursement intégral de toutes les primes payées pendant la durée de la police.

En supposant que la police est une police d'assurance contre la maladie ou les accidents, quelles sont les conséquences fiscales du transfert de la police?

Réponse de l'ADRC

L'ADRC est d'avis que le paragraphe 148(7) L.I.R. n'est pas applicable au transfert d'une police d'assurance contre les maladies graves qui est une police d'assurance contre la maladie ou les accidents. Toutefois, l'actionnaire qui acquiert de sa société une telle police pour une contrepartie inférieure à la juste valeur marchande devra inclure dans le calcul de son revenu en vertu du paragraphe 15(1) L.I.R., un montant égal à l'excédent de la juste valeur marchande de la police d'assurance contre les maladies graves sur la contrepartie versée.

Relativement à la détermination de la juste valeur marchande d'une telle police, nous sommes avis que l'âge et l'état de santé de l'assuré, le montant des primes remboursables ainsi que le montant des primes payées à la date du transfert seront, entre autres, des éléments à considérer.

Louise J. Roy
Le 10 octobre 2003
2003-003686

Summaries

Summary Under

Tax Topics - Income Tax Act - Section 15 - Subsection 15(1)

benefit to shareholder on gratuitous transfer to it of critical illness policy entitled to refund of premiums on maturity

For the first nine years of a critical illness policy on the life of one of its shareholders, the corporation has been paying the premiums on the policy. As a result of the payment of an additional premium, the policyholder (the corporation) is entitled to a return of premiums on the policy maturity after 10 years. In the 10th year, the corporation assigns the insurance policy without consideration to the shareholder, who pays the premium due for the 10th year and then receives a full refund of all premiums paid during the term of the policy.

What are the tax consequences of transferring the policy? CCRA responded:

It is the CCRA's view that subsection 148(7) does not apply to the transfer of a critical illness policy that is an accident or sickness policy. However, a shareholder who acquires such a policy from the shareholder’s corporation for less than fair market value will be required by virtue of subsection 15(1) to include in computing income an amount equal to the excess of the fair market value of the critical illness policy over the consideration paid.

In determining the fair market value of such a policy, we are of the view that the age and health of the insured, the amount of refundable premiums and the amount of premiums paid at the date of transfer will be among the factors to consider.

Summary Under

Tax Topics - Income Tax Act - Section 148 - Subsection 148(7)

s. 148(7) inapplicable to critical illness policy

S. 148(7) did not apply to the transfer of a critical illness policy by a corporation to its shareholder.

Summary Under

Tax Topics - General Concepts - Fair Market Value - Other

FMV of critical illness policy takes refundable premium amount into account

After indicating that this transfer generated a s. 15(1) benefit equaling the FMV of the policy, CCRA stated:

In determining the fair market value of such a policy, we are of the view that the age and health of the insured, the amount of refundable premiums and the amount of premiums paid at the date of transfer will be among the factors to consider.

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10 October 2003 Roundtable, 2003-0036865 F - TRANSFER DE POLICE D'ASSURANCE

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