Principal Issues: [TaxInterpretations translation] Are the premiums paid by a parent corporation on a life insurance policy owned by it and assigned as security for a loan incurred by its subsidiary deductible in computing the parent's income pursuant to paragraph 20(1)(e.2)?
Position: No
Reasons: Paragraph 20(1)(e.2) provides a deduction to a borrower who has assigned an interest in a life insurance policy as security
XXXXXXXXXX 2007-021960 Michel Lambert CA, M.Fisc. March 14, 2007
Dear Madam,
Subject: Application of paragraph 20(1)(e.2)
This is further to your faxed letter of January 4, 2007, asking whether premiums paid by a parent corporation on a life insurance policy owned by it and assigned as security for a loan owing by its subsidiary are deductible in computing the parent's income pursuant to paragraph 20(1)(e.2).
Unless otherwise indicated, all statutory references herein are to provisions of the Income Tax Act (the "Act").
As stated in paragraph 22 of Information Circular 70-6R5 dated May 17, 2002, it is our practice not to issue written opinions on proposed transactions otherwise than by way of advance rulings. Furthermore, when it comes to determining whether a completed transaction has received appropriate tax treatment, that determination is made first by our Tax Services Offices as a result of their review of all facts and documents, which is usually performed as part of an audit engagement. However, we can offer the following general comments that we hope may be helpful to you. These comments may, however, under certain circumstances, not apply to your particular situation.
Paragraph 20(1)(e.2) provides a deduction in computing a taxpayer's income in respect of the lesser of two amounts that can reasonably be considered to relate to the amount owing by the taxpayer to a restricted financial institution during a year on account of a loan from the institution. The first of those two amounts refers to the premiums payable by the taxpayer under a life insurance policy (other than an annuity contract) in respect of the year if the taxpayer has assigned an interest in the policy to the financial institution as security for the loan.
In our view, the parent does not satisfy that condition for the application of paragraph 20(1)(e.2) and cannot deduct the life insurance premiums in the situation described above.
As stated in Information Circular 70-6R5, this opinion is not an advance income tax ruling and is not binding.
Yours sincerely,
Manager
Financial Sector and Exempt Entities Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch