5-901611
Dear Sirs
Re: Request for Technical Interpretation Business Loan Insurance
We are writing in response to your letter, dated July 16, 1990, in which you asked for our confirmation of your conclusions regarding the income tax treatment of disability insurance acquired to ensure that a business loan will be repaid in the event that the Insured becomes disabled.
You referred us to the Department's comments in Interpretation Bulletin IT-309R in support of your conclusion that premiums paid on a policy which is purchased to ensure that a business loan will be repaid in the event of a disability are deductible.
We wish to advise that the courts have indicated, in The Queen v. Antoine Guertin Lteé, 88 DTC 6126 (Federal Court of Appeal) and in Equitable Acceptance Corporation Limited v. MNR, 64 DTC 5045 (Exchequer Court), that the payment of premiums on term life Insurance is not an expense (but rather a capital outlay) because it does not result in a diminution of the taxpayer's property. The Department's administration position is that it will allow premiums paid on term life insurance to be deducted at a cost of borrowing under subparagraph 20(1)(e)(ii) if all of the conditions outlined in paragraph 2 of IT-309R are satisfied. However, this administrative position has never been extended to premiums paid on disability insurance that is used as collateral for a loan.
Further, it is our view that disability insurance premiums cannot be considered to be "a standby charge, guarantee fee, registrar fee, transfer agent fee, filing fee, service fee or any similar fees, for the purposes of paragraph 20(1)(e.1) of the Act and are therefore not deductible under that provision.
The tax treatment of premiums and benefits under a disability insurance policy will depend on the particular circumstances of the situation. For this reason, we cannot respond to the other queries of a general nature raised in your letter relating to this subject matter.
The foregoing comments are given in accordance with the practice referred to in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990 and are not binding on Revenue Canada, Taxation.
Yours truly,
for Director Reorganizations and Non-resident Division Rulings Directorate Legislative and Intergovernmental Affairs Branch