Principal Issues: Can the CRA provide details on its review of tax promoter schemes and, in particular, provide details on the types of strategies under review that use insurance products to create certain tax benefits?
Position: Please see response that refers to the comments provided at the 2020 CALU Roundtable.
2021 CLHIA Roundtable – May 2021
Question 2 – Update on “tax promoter schemes”
Background
In December 2019 CPA Canada issued a blog (the “blog”) commenting on the CRA’s review of certain “tax promoter schemes”. The blog specifically mentioned certain strategies involving insurance products which were described as follows: The promoter offers a complex strategy using life insurance to distribute corporate surplus by increasing paid-up capital or creating a loan payable to the shareholder. The strategy also creates interest and insurance expense deductions. This can similarly be achieved through critical illness or group accident and sickness policies.
Question
Can the CRA provide more details on its review of tax promoter schemes and, in particular, provide more details on the types of strategies under review that use insurance products to create certain tax benefits.
CRA Response
In July 2020, we answered a similar question posed by CALU at the CRA Roundtable (2020 CALU Roundtable – Q1 – CRA Audit Activities, E2020-0842131C6). In that answer, CRA provided general comments, including two specific promoter schemes involving “insurance products”, namely
1. Leveraged insured annuities (LIAs) attempt to circumvent the 2013 amendments to the “LIA Policy” definition in the Income Tax Act; and
2. Leveraged “employer’s (group) disability insurance policies” in which a participant (usually an employer) is obligated to pay the net proceeds of insurance to the issuer under a separate side agreement.
The CRA audit work is continuing with respect to insurance product arrangements. We would add that participants in certain “employer’s (group) disability insurance policies” were placed under audit earlier this year. Audit work is continuing in these files. The CRA is reviewing information obtained from participants with the view to determining the validity of the transactions and their compliance with the Income Tax Act.
Response prepared by Tax Avoidance Division of Compliance Programs Branch
Bob Naufal
May 19, 2021
2021-088427
UNCLASSIFIED