Principal Issues:
Does the CRA intend to publish any guidance as to how foreign issued life insurance policies are to be valued for purposes of subsection 94.2(11)?
Position: See response below
Reasons: See response below
CALU - Conference for Advanced Life Underwriting (2008)
Question 11
Foreign issued life insurance policies
Under proposed subsections 94.2(10) and (11) of the Act, contained in Bill C-10, foreign issued life insurance policies will be subject to the mark-to-market income inclusion rules, subject to certain exclusions contained in proposed subsection 94.2(11).
What we are particularly interested in is the exclusion that applies if any of the conditions of subparagraph 94.2(11)(c)(ii) are met. These criteria are as follows:
(ii) the taxpayer can establish to the satisfaction of the Minister that
(A) the interest in the policy was, on the anniversary day of the policy that occurs in the particular taxation year,
(I) an exempt policy, or
(II) a prescribed annuity contract, or(B) the taxpayer has included in computing the taxpayer's income for the particular taxation year the amount, if any, required under section 12.2 to be included in computing the taxpayer's income for the particular taxation year in respect of the interest;
Where a non-resident acquires a life insurance policy from a life insurer not resident in Canada, it is unlikely that the individual will be able to determine if the policy satisfies any of the required conditions listed above. However, not being able to determine if, or how, these complex rules apply to their insurance policies may leave immigrants or others owning foreign issued life insurance policies open to reassessment and potential penalties.
Question:
Does the CRA intend to publish any guidance as to what will satisfy the Minister that the conditions necessary to qualify for exclusion have been met?
Response
Since CRA depends on a self-assessing taxation regime, the onus is on the taxpayer to establish that the conditions for exclusion under subparagraph 94.2(11)(c)(ii) have been met. The CRA does not plan on publishing any guidelines at this time. Our intention is to evaluate the merits of documentation provided to support exclusion on a case-by-case basis. It may be possible to develop an administrative policy in the future after a thorough review of taxpayer submissions.