5 August 1988 Income Tax 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.

DATE August 5, 1988

TO       E.H. Gauthier
         Director
         Special Audits Division

FROM:    Financial Institutions Division
         M. Loveday
         957-8961

SUBJECT: XXXX
         Cornwall: September 6-9, 1988

As requested in your memo of July 27, 1988 we are writing to suggest a few topics that you might consider including in the agenda of the upcoming insurance committee meeting.

1. Reinsurance

    (a) What is the appropriate reserve for the reinsurer?
        (Reg'n 1400 & 1401)

        (i)   nature of contract - life or liability

        (ii)  reserve where life reinsured is not Canadian

        (iii) what are the appropriate rates for the
              calculation - those used the original policy
              or those used to calculate the reinsurance
              premium

        (iv)  will the various forms of insurance have any
              effect of the above (stop-loss, quota share)

    (b) What is the appropriate reduction in reserve to the
        reinsured? (reg'n 1402)

        (i)  should the reduction be based on a proportion
             of the original policies reserves; or should it
             be based on the amount of premium paid to the
             reinsurer

        (ii) what effect will the various forms of
             reinsurance have on this issue

    (c) What types of reinsurance are being found by the
        auditors?

        (i)  proportional types:

             (A) quota share

             (B) surplus

        (ii) non-proportional types;

             (A) excess of loss:

                 (I)  risk basis

                 (II) occurence basis

             (B) stop loss or loss ratio

(d) Are there any new types showing up?

    (e) Are the above types of reinsurance seen in both
        arm's length and non-arm's length situations?

    (f) What can be done about potentially abusive contracts
        between related companies residing in different
        countries (eg. tax havens)?

    (g) What recommendations should we make to the
        Department of Finance?

2. Draft paragraph 149(l)(t), 149(4.1) and 149(4.2)

    (a) how to allocate premiums paid between farm and non-
        farm uses? (b) how will the non-arm's length rules

3. Canadian Reserve liabilities

- what items should be included?

4. Captive Insurers

F. A. P. I. XXXX 20(1)(II.1)

5. Warranties

Unregulated companies 1400(a) reserves no 1400(e) reserves car manufacturers

6. Annuities

e.g. XXXX not a life insurer - but claiming Reg. 1401 reserves

7. Reciprocal Exchanges

Foreign reciprocal exchanges claiming an exemption under 149(1)(1) Canadian reciprocal exchanges - professionals etc.

8. Mutuals

      Demutualization - Canadian insurer
                        Foreign insurer insuring Canadian
                        residents

9. Group policies

participating/non-participating policy

10. Assumption Reinsurance

new legislation - proposed subsection 138(11.92)

11. Capital case

reinsurance issues brought up by Stan Trevor

12. Reserves on non-resident lives

13. Income vs. Capital

14. Bank Balances with respect to the computation of the CIF - discussions with the XXXX

F.L. Workman

F. Lee Workman Chief Financial Institutions Section Financial Industries Division Rulings Directorate