| 19(1) | File No. 5-8286 |
| J.A. Szeszycki | |
| (613) 957-2130 |
July 17, 1989
Dear Sirs:
Re: Universal Life Insurance Policies Family Allowances
This is in reply to your letter of June 21, 1989, in which you requested confirmation of the tax treatment afforded investment income derived from family allowance payments that are directed into universal life insurance policies.
You have made reference in your letter to paragraph 16 of Information Circular 79-9R which discusses the conditions under which an exception can be made to the normal attribution rules. Those rules normally require that income derived from the investment of family allowance payments be included in the income of the recipient of those payments (usually the mother of the child). Where the payments, however, have been directed into a bank account or other investment in the child name and the investment can be readily identified as belonging to the child the investment income earned on that account or that investment would be considered income of the child.
Our Comments
Under the circumstances described in your letter, the family allowance payments are proposed to be directed into an account in the child's name, and account which will hold no other funds but the family allowance received on the child's behalf. The amounts in the account will be used to fund a life insurance policy. While the insured is still a minor child the parents will be the contract holders and as such the income accruing to the policy will be reported to them. At the time that the insured ceases to be a minor the policy will be transferred without tax consequences under the provision of subsection 148(8) of the Income Tax Act into the hands of the insured individual. It is our opinion that, under the circumstances described above, the investment income accruing to the policy would be considered income of the child.
We emphasize that our comments as set out above are an opinion only and, therefore, are not binding on the Department.
We hope our comments will be of assistance to you.
Yours truly,
for DirectorSmall Business and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch