Dear Sirs:
Re: Life Insurance held in a trust governed by an RRSP
This is in reply to your letter of June 24, 1991 requesting our comments with respect to a trust, governed by an RRSP, holding a life insurance policy as an investment given the provisions of paragraphs 198(6)(c), (d) and (e) of the Income Tax Act (the "Act").
Since the subject matter of your letter appears to pertain to the issue or proposed issue of an 24(1) by your Company in the circumstances detailed your submission, we are unable to provide you with our opinions as you have requested.
If these circumstances relate to a completed transaction, any requests for our comments must be made through the District Taxation Office of the taxpayers involved. At the direction of the District Office, they may then consult with us and obtain our views on the matter. 24(1)
If the transaction relates to at a 24(1) 24(1) the proposal must be the subject matter of an advance income tax ruling requested in accordance with the procedures set out in the Department's Information Circular IC 70-6R2, a copy of which is attached. We note that this information was provided to your company, with respect to the 24(1) our letter of May 18, 1990 to the attention of 19(1) your office.
While we can not respond to your concerns at this time, we can note that the provisions of subsection 146(10) of the Act are applicable by virtue of subsection 198(6) of the Act with respect to each payment made under or to acquire an interest in a life insurance policy unless the policy is excepted by virtue of its compliance with the provisions of paragraphs 198(6)(c), (d) and (e) of the Act. Accordingly, a payment under a policy made at a time when it is not excepted would not generally cause previous payments to become off side on a retroactive basis. We must note however that in our opinion, the provisions of section 207.1 of the Act would be applicable to the policy as a whole.
We are not prepared to discuss the application of the Act to a circumstance where a premium is not paid without knowing what the provisions of the policy entail. For example we would need to know if it were reasonable to assume a prepayment of premiums exists as discussed at paragraph 8 of interpretation Bulletin IT 408R.
With respect to withdrawals of funds from a policy or the possible contribution of additional amounts to cover a short fall that might occur, we are of the opinion that a policy, to be excepted under 198(6), must meet the conditions imposed at all relevant times. Hence, it would be insufficient for a policy to have a mere potential to qualify for the exception.
In closing we would also like to note that where a transaction undertaken will result directly or indirectly in a tax benefit as defined in subsection 245(1) of the Act and it is reasonable to assume that it was not undertaken or arranged primarily for bona fide purposes other than to obtain a tax benefit, then the provisions of subsection 245(2) of the Act may apply to determine the tax consequences to a person in order to deny the tax benefit.
We trust these comments are satisfactory to your needs.
Yours truly,
for DirectorFinancial Industries DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch