28 March 2000 External T.I. 2000-0014245 - Subsection 70(5.3) - Multiple Life Policies70(5.3)

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.

Principal Issues:

Whether subsection 70(5.3) applies to multiple life policies.

Position:

No.

Reasons:

The wording of subsection 70(5.3) contemplates that there can only be a single life insured under the policy.

CALU CONFERENCE
May 2000

Question 1.

Multiple Life Policies

A multiple life policy insures two or more lives and allows for the payment of multiple death benefits. For the purposes of valuing the shares owned by a deceased shareholder immediately before death, subsection 70(5.3) provides that the fair market value of an insurance policy under which the shareholder "was the person whose life was insured" is considered to be the cash surrender value of the policy at that time. This provision ensures that life insurance proceeds payable as a consequence of death are not reflected in the value of the shares and therefore do not give rise to a capital gain on death.

Draft legislation released by the Department of Finance on December 17, 1999 will, if enacted, expand the scope of subsection 70(5.3) to apply to the valuation of shares owned by a spousal trust immediately before the death of the surviving spouse and the valuation of shares owned by a shareholder immediately before the shareholder ceases to be resident in Canada provided that the spouse or the shareholder, as the case may be, "was the person whose life was insured" under the policy.

Will the Agency confirm that:

a) subsection 70(5.3) will apply in the case of a deceased shareholder, provided that the deceased shareholder was one of the persons whose lives were insured under the policy;

b) draft subsection 70(5.3) will apply:

• in the case of a spousal trust, provided the deceased spouse was one of the persons whose lives were insured under the policy; and
• in the case of a shareholder who ceases to be resident in Canada and such shareholder was one of the persons whose lives were insured under the policy.

Agency's Position:

Subsection 70(5.3) refers to "any life insurance policy under which the taxpayer was the person whose life was insured". In our view, this wording contemplates that there can be only one life insured (i.e., the deceased shareholder) under the policy. Accordingly, it is our opinion that subsection 70(5.3) will not have application in the case of multiple life policies.

With regard to the December 17, 1999 draft legislation, since draft subsection 70(5.3) contains similar wording referring to "the person whose life was insured", we are of the view that draft subsection 70(5.3) will also not apply to multiple life policies.

In our opinion, in order for the provisions of subsection 70(5.3) to apply to multiple life policies, a legislative amendment would be required. In this regard, we note that this issue was raised at the 1998 APFF Congress (Association de Planification Fiscale et Financière - see Question 41) and the Department of Finance indicated that they would examine the issue further.

Prepared by: Jenie Leigh
Date: March 28, 2000