Where an employer funds retirement benefits under a retirement compensation plan by acquiring a life insurance policy and designating the employee as the beneficiary, do withdrawals from the life insurance policy result in the custodian being liable for the refundable tax under s. 207.5(1)?
After noting that s. 207.6(2) deems an employer who acquires an interest in a life insurance policy in such circumstances to be the custodian of the RCA whose interest in the life insurance policy is deemed to be the specified property of the RCA, CCRA stated:
Paragraph 207.6(2)(d) provides that any payment received in respect of an interest in a life insurance policy and any amount of refundable tax received, is deemed to be solely an amount out of or under the RCA by the recipient and not to be the payment of any other amount. Since the amounts are deemed to be received by the beneficiary, we are of the view that the custodian does not have to pay Part XI.3 tax on the amounts derived from the interest in the life insurance policy. However, those amounts will give rise to a refund of refundable tax under the computation provided in paragraph (c) of the definition of refundable tax in subsection 207.5(1).