Principal Issues: What is the eligible amount of a gift of a life insurance
Position: The eligible amount of a gift must be determined in considering paragraphs 40 and 41 of the Information Circular 89-3.
Reasons: The Income Tax Act does not set out any specific method of valuation for the purposes of a gift to a registered charitable organisation.
XXXXXXXXXX 2008-026709 Michel Lambert, CA, M. Fisc February 25, 2008
Dear XXXXXXXXXX
Re: Gift of a life insurance policy
This is in reply to your letter of January 31, 2008 in which you ask for our opinion regarding the value of a life insurance policy gifted to a charity. More specifically, you ask us to confirm that CRA is willing to use the guidelines as established in paragraphs 40 through 41 of the Information Circular 89-3 Policy statement on business equity valuation.
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject of an advance income tax ruling request submitted in a manner set out in Information Circular 70-6R5. As stated in paragraph 22 of IC 70-6R5, written opinions are not advance tax rulings and, accordingly, are not binding on the Canada Revenue Agency (the "CRA"). Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. However, we are prepared to provide the following comments.
Unless otherwise stated, all statutory references are to the Income Tax Act.
According to the legislative proposals contained in Bill C-10, which received Second Reading in the Senate on December 4, 2007, total charitable gifts depend on the eligible amount of a gift. Subsection 248(31), as proposed, sets out that the eligible amount of a gift is the amount by which the fair market value of the property that is subject of the gift exceeds the amount of the advantage, if any, in respect of the gift.
Paragraphs 40 and 41 of the Information Circular 89-3 list the factors to be considered in valuing a life insurance policy. As CRA stated at the 2008 annual conference of the Association de planification fiscale et financière, we are of the opinion that these paragraphs must be considered in establishing the fair market value (FMV) of a life insurance policy at the time of the gift to a qualified donee.
Paragraph 3 of the Interpretation Bulletin IT-244R3 Gift by individuals of life insurance policies as charitable donations must be read taking into account this new position.
Regarding the receipt, which may be issued under subparagraph 3501(1) of the Income Tax Regulation, the explanatory notes released with the November 9, 2006 draft technical Regulations amendments stated the following:
It is proposed that subsections 3501(1), (1.1) and (6) of the Regulations be amended to provided that every official receipt issued by a registered organisation in respect of a gift contain in addition to information already prescribed, a description and the amount of the advantage, if any, and the eligible amount of the gift.
We are of the opinion that for the purpose of calculating the eligible amount, the donee can take into account the FMV of the life insurance policy at the time of the gift determined as indicated above where the FMV exceeds the cash surrender value at that time.
Subsection 148(9) defines the term "value" for the purposes of section 148. Therefore, for purposes of subsection 148(7), we are of the opinion that the value of a life insurance policy corresponds to the amount determined according to subsection 148(9) and constitutes the proceeds of disposition for purposes of subsection 148(1).
We trust the foregoing comments are of assistance.
Ghislain Martineau
Manager
Financial Sector and Exempt Entities Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch