12 November 1982 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.

W. B. Baumeister (613) 995-0051

November 12, 1982

Dear Sirs:

We have for reply your letter of October 8, 1982, in connection with policy loans under a life insurance policy.

Your example is as follows:

Amount of loan (proceeds of disposition per subparagraph 148(9)(e.2)(ii) of the
Act)                                                                              $3,000
ACB of life insurance policy (paragraph 148(9)(a) of the Act)                      2,600 
                                                                                 -------
Income of policy holder (subsection 148(1) of the Act)                            $  400
                                                                                  ======
The repayment of the policy loan three years after the loan was taken 
out results in the following:

(a) A deduction in computing income will be allowed for $400 of the $3,000 repaid under paragraph 20(l)(hh) of the Act.

(b) The ACB of the life insurance policy will be calculated as follows:

 Premiums, etc. (paragraph 148(9)(a)(ii))                                       $2,600
 Amount previously included in income (paragraph 148(9)(a)(iii))                   400 
 Amount repaid ($3,000) less amount deductible under paragraph
 20(1)(hh) ($400) (paragraph 148(9)(a)(iv))                                      2,600
                                                                                ------   
                                                                                 5,600
less:                                                                           ====== 

Amount of policy loan previously received (paragraph 148(9)(a)(vi))              3,000
                                                                                ------
ACB of life insurance policy after repayment of loan                            $2,600
                                                                                ======

As you can see, the ACB of the life insurance policy after the repayment of the policy loan is the same as it was before the policy loan was taken out. The amount of $400 brought into income of the year in which the loan was taken out, is deducted from income in the year of the loan repayment and not added to the ACB of the policy, as you had assumed.

We trust the above information will be of assistance to you.

Yours truly,

for Director Non-Corporate Rulings Division

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