Principal Issues:
For the purpose of subsection 128.1(9), whether the policyholder who is an individual must use the cash surrender value or the FMV of the policy using the guidelines found in paragraphs 40 and 41 of Information Circular IC 89-3.
Position:
The FMV of the life insurance policy must be used. To establish that FMV, the guidelines in paragraphs 40 and 41 of Information Circular 89-3 must be taken into account.
Reasons:
Application of the Law.
CALU - Conference for Advanced Life Underwriting (2008)
Question 3
Calculation of fair market value of a life insurance policy where policyholder ceases to be a resident of Canada
When an individual ceases to be a resident of Canada and owns certain reportable properties with a total fair market value in excess of $25,000, an information return must be filed in accordance with subsection 128.1(9) of the Act. A life insurance policy is included in the definition of "reportable property" under subsection 128.1(10) of the Act.
Question:
In the CRA's view, in valuing the life insurance policy for the purposes of subsection 128.1(9) of the Act, should the policyholder use cash surrender value or the fair market value of the policy using the guidelines found in paragraphs 40 and 41 of Information Circular 89-3, Policy Statement on Business Equity Valuations?
CRA's Response
For the purposes of subsection 128.1(9) of the Act, it is our view that an interest in a life insurance policy owned by an individual and that is a "reportable property" as defined under subsection 128.1(10) of the Act must be valued at its fair market value taking into account the factors listed in paragraphs 40 and 41 of Information Circular 89-3 Policy Statement on Business Equity Valuations.
Louise J. Roy
2008-027040
(613) 958-8968
April 29, 2008