Principal Issues: [TaxInterpretations translation] What is the cost amount of an interest in a life insurance policy for purposes of applying section 233.3?
Position: The adjusted cost basis of an interest in a life insurance policy, as defined in subsection 148(9) can generally be considered as a reasonable estimate of the cost amount for the purposes of the application of the rules of section 233.3.
Reasons: Text of the Act and previous positions.
FINANCIAL STRATEGIES AND FINANCIAL INSTRUMENTS ROUNDTABLE, 7 OCTOBER 2011
2011 APFF CONFERENCE
Question 1 – Statement of foreign investments and life insurance policies issued by foreign insurers
In last year's Financial Strategies and Instruments Roundtable, the CRA confirmed that a life insurance policy issued by a foreign insurer meets the definition of "specified foreign property" in section 233.3 of the Income Tax Act (the “Act”) and, consequently, a Canadian entity that holds an interest in a life insurance policy issued by a foreign insurer having a cost amount exceeding $100,000 must comply with the reporting requirements of section 233.3 (footnote 1).
The question is whether the cost amount of an interest in a life insurance policy is the adjusted cost basis ("ACB”) as defined in subsection 148(9), or the premiums paid.
CRA Response
A "reporting entity" for a taxation year must file Form T1135, Foreign Income Verification Statement, within the prescribed time limit under subsection 233.3(3). A "specified Canadian entity" qualifies as " reporting entity " for a taxation year or fiscal year, where the total of all amounts each of which represents a cost amount of its "specified foreign property" exceeds $100,000 at any time in the year or period, other than a time when it is not resident in Canada, all pursuant to the definitions of those expressions in subsection 233.3(1).
The "cost amount" of a holder's interest in a life insurance policy at a particular time will generally be determined under paragraph (f) of the definition of that expression in subsection 248(1). It corresponds to the cost to the taxpayer of the property as determined for the purpose of computing the taxpayer’s income, except to the extent that that cost has been deducted in computing the taxpayer’s income for any taxation year ending before that time.
The term "cost" is not defined for the purposes of Act. In addition, the determination of the cost of a property for computing a taxpayer's income involves an analysis of all the facts of a particular situation. We are of the view, however, that the "adjusted cost basis" of a holder's interest in a life insurance policy, as defined in subsection 148(9), can generally be considered a reasonable estimate of the cost of the property for the purposes of the application of the rules of section 233.3.
Yannick Roulier
(613) 957-2134
2011-039944
FOOTNOTES
Due to our system requirements, footnotes contained in the original document are reproduced below:
1 Financial Strategies and Financial Instruments Roundtable, 2010 Conference, Montreal, Association de planification fiscale et financière, Question 12.