17 September 1992 External T.I. 9209445 F - Deductibility of Insurance Premiums & IT-309R

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.

Attention:  19(1)

September 17, 1992

Dear Sirs:

Re:  Interpretation Bulletin IT-309R

This is in reply to your letter dated March 19, 1992 requesting clarification of the Department's view's on the deductibility of insurance premiums as set out in IT-309R prior to the enactment of paragraph 20(1)(e.2) of the Income Tax Act (the "Act").  We apologize for the delay.

IT-309R describes the limited circumstances under which, in the Department's view (and prior to the application of paragraph 20(1)(e.2) of the Act), all or part of an insurance premium is deductible as a cost of borrowing money under subparagraph 20(1)(e)(ii) of the Act.  Paragraph 2 of the bulletin indicates that, among other criteria, the premium must be in respect of term insurance, with paragraphs 3 and 4 providing some commentary on term insurance.  Your enquiry concerns the meaning of term insurance for purposes of IT-309R in the context of a "universal life" policy .

You advise that a universal life policy is an unbundled policy which contains two separate and distinct elements, namely term insurance coverage and a savings element, with the portion of the premium pertaining to each element being readily identifiable.  Your specific enquiry is whether the portion of the premium pertaining to the insurance element of such a policy would qualify for purposes of paragraph 2 of IT-309R.

The Department's commentary on term insurance in paragraphs 3 and 4 of IT-309R reflects an appreciation of certain features that might be present in a term insurance policy which do not fundamentally detract from its essential nature, that being the provision of term insurance.  In the situation you describe, given the inherent dual nature of the policy, we do not view it as being, at its most fundamental level, a policy of term insurance.  Accordingly, it would not be regarded as a term insurance policy for the purposes of paragraph 2 of IT-309R.

We hope this will be of assistance to you.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate