| 19(1) | 5-8910 |
| G. Thornley | |
| (613) 957-2101 | |
| December 13, 1989 |
Dear Sirs:
Re: Gifts of Life Insurance policies and premiums
This is in reply to your letter of August 16, 1989 (received in this office on October 20, 1989) requesting our consideration of a number of issues arising from your interpretation of comments in Interpretation Bulletin IT-244R.
In accordance with paragraph 23 of Information Circular 70-6R the Department does not issue written opinions concerning proposed transactions. Should you in fact wish an advance income tax ruling relative to the fact situation set out in your letter, it will be necessary for you to conform to the guidelines under which such advance income tax ruling are issued as set out in IC 70-6R.
We do however, offer the following general comments with respect to gifts of insurance policies and premiums as charitable donations.
Our comments will follow the point order of your questions.
Our comments
1) As IT-244R2 refers to a gift of a life insurance policy (both "whole life" and "term life") it would appear that a term policy could be the subject of a gift to a charity. However as a term policy would rarely have a cash surrender value, the value of the gift would be "nil". Premiums on a donated term life policy will, however, qualify as charitable donations when paid in the manner referred to in the Bulletin. (See paragraph 2 of IT-244R2)
2) Unless otherwise noted the Bulletin is applicable to "whole life" and "term life" policies. If you have a particular type of policy in mind you may wish to refer a copy of it to your local District Taxation Office for their comments.
3) The gift of annual premiums represents individual gifts. See paragraphs 2 and 8 of IT-244R2.
4) Each annual premium is independently subject to the 10 year rule when it is applicable. See, however, the comments in paragraph 8 of the Bulletin.
5) When a charitable gift is subject to the 10 year rule, any life insurance proceeds received during such 10 year period must be retained for at least 10 years after the date of the last premium.
6) Where policy premiums are paid in advance the 10 year period runs from the payment date of those prepaid premiums. This would require the life insurance proceeds, if they came available during this time, to be held until the end of that 10 year period also.
7) The gift of a life insurance policy is separate from a gift or gifts of the annual premiums. The 10 year rule runs from the gift of the policy and from the gift of each premium separately, however, see the comments in the last sentence of paragraph 8 of the Bulletin. As life insurance proceeds relate to both the gift of the policy and of the subsequent premiums, such insurance policy proceeds will have to be held for at least 10 years after the last premium is paid by the donor. Gifting of annual premiums is not effectively the gifting of a new policy. They are merely premiums to be used by the charity to fund the policy and in this respect it does not appear that there could be substituted property for them. Paragraph 8 of the Bulletin would appear to support this view as "property substituted therefor" is, in the context of the sentence, in reference only to the "policy". We have not, however, given this matter exhaustive study. Should you have a factual example in mind we would be pleased to review it.
8) On the death, of the donor, a charity may not spend any of the proceeds of the policy before the expiry of the 10 year term following the time of the last premium payment if the charity wishes to avoid having the proceeds included in the calculation of its disbursement quote.
Please note that when a donor assigns a life insurance policy in accordance with the terms of IT-244R2 he or she will be considered to have disposed of that policy pursuant to section 148. See paragraph 5 of the Bulletin for further details.
We trust our comments will prove helpful.
Yours truly,
for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch