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:
1. Will subsection 207.6(2) of the Act apply where a retirement compensation arrangement acquires an interest in a life insurance policy?
2. Will a life insurance policy owned by an RCA trust be exempted under paragraph (e) of the definition of taxable life insurance policy in subsection 211(1) of the Act?
Position:
1. No.
2. No.
Reasons:
1. The wording in subsection 207.6(2) of the Act is very clear. It applies where an employer acquires an interest in a life insurance policy in order to fund certain payments that are to be provided to an employee in certain circumstances.
2. A life insurance policy owned by an RCA trust is not a policy that is at that time a retirement compensation arrangement.
XXXXXXXXXX 2001-008000
M. P. Sarazin C.A.
July 20, 2001
Dear XXXXXXXXXX:
Re: RCA Trusts and Life Insurance Policies
This is in reply to your facsimiles of April 17 and May 30, 2001, requesting various opinions relating to the different treatment of life insurance policies that are owned by retirement compensation arrangements ("RCAs") and life insurance policies that are owned by employers in order to fund the employer's obligation to provide benefits in respect of an employee's loss of office, retirement or substantial change in his or her services rendered to the employer.
You ask us to confirm that the Canada Customs and Revenue Agency (the "Agency") is of the view that subsection 207.6(2) of the Income Tax Act (the "Act") only applies to life insurance policies that are acquired by an employer in order to fund its obligation to provide benefits in respect of an employee's loss of office, retirement or substantial change in his or her services rendered to the employer.
In its response to Question 5 at the 2001 CALU Conference Round Table, the Agency expressed the view that an interest in a life insurance policy held as an investment by an RCA trust would be treated as a taxable life insurance policy because it is not excluded under paragraph (e) of the definition of "taxable life insurance policy" in subsection 211(1) of the Act. You are of the view that this interpretation denies the legislative intent and spirit of the exemptions provided in the definition and this interpretation could lead to potential abuse of subsection 207(2) of the Act. You also commented that our view will result in the preferential treatment being given to life insurance policies acquired by employers over the life insurance policies acquired by RCA trusts. You believe that certain insurance companies have worked out administrative procedures with the Agency exempting the policies held by RCA trusts from the taxes under Part XII.3 of the Act.
Our response to Question 4 at the 2001 CALU Conference Round Table deals specifically with the application of subsection 207.6(2) of the Act. We have concluded that a life insurance policy acquired by an RCA trust will not be subjected to subsection 207.6(2) of the Act.
With respect to our response to Question 5 at the 2001 CALU Conference Round Table, we concluded that an investment held by an RCA trust is not itself, deemed or otherwise, an RCA for purposes of the Act. Consequently, based on the wording used in the exclusion in paragraph (e) of the definition of "taxable life insurance policy" in subsection 248(1) of the Act, an investment held by an RCA trust would not be, in and by itself, a retirement compensation arrangement for purposes of the Act. Since the wording used in the Act is clear, we can only apply the provision in the manner described in our response to Question 5. We have been unable to confirm whether or not the Agency has, in fact, exempted RCA owned life insurance policies from the application of Part XII.3 of the Act.
A copy of this letter and your facsimiles will be forwarded to the Department of Finance so that they will be aware of your concerns.
We trust the above comments will be of assistance to you.
Yours truly,
Roberta Albert, C.A.
for Director
Financial Industries Division
Income Tax Rulings Directorate
c.c. Dave Wurtele, Department of Finance
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2001
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2001
Email this Content