| June 22, 1990 | |
| Special Audits Division | Financial Industries Division |
| E.H. Gauthier | B.G. Dodd |
| Director | 957-9769 |
| Attention: M. Loveday | |
| Specialized Industries Section | File No. 7-4187 |
SUBJECT: Taxation of Gains and Losses on Dispositions of Investments by Insurers
Further to your July 27, 1989 memorandum. 23 The submission was the insurance industry's response to your proposal to commence assessing on income account the gains/losses arising on dispositions of investments by insurers, with the sole exception of owner-occupied real estate.
23 namely that while it is a question of fact whether the making and realizing an investment is part of the taxpayer's insurance business, this will generally be the case, and the onus should therefore be on the insurer to establish that a particular gain did not arise in carrying on or carrying out its insurance business. This approach finds support, for example, in a recent case involving real estate transactions by a professional trader. In O & M Investments Ltd., 90 DTC 6150 (Federal Court - Trial Division), Jerome, A.C.J. states, at page 6151:
"But notwithstanding the fact that those people (in previous cases) were professional traders, there can always be one different purchase which requires special consideration. I have accepted that conclusion as did Mr. Justice Collier and Mr. Justice Walsh in some of these cases...This taxpayer O & M Investments Ltd. and Mr. Weltzien have the chance, of course, to persuade me of that. That's their responsibility. The plaintiff, as a professional trader, has the onus of establishing that although a professional real estate trader in which all of his transactions formed part of his general real estate enterprise...that this transaction should be isolated and that it should be found by me to have been acquired...with a different intention."
You may recall that in our May 6, 1988 comments on the position paper which lead to your proposed assessing policy, in addition to expressing the view that it should generally exclude owner-occupied premises of insurers, we suggested that shares of a wholly-owned subsidiary might also be an exception. We also note that your January 12, 1989 letter to the 24(1) (inviting comments on your proposal) indicated an exception for shares of a "designated corporation" as defined in subsection 2405(3) of the Income Tax Regulations, i.e. common share ownership of 30% or more.
21(1)(b)
23
21(1)(b)
We hope these comments will be of assistance.
F. Lee Workman for DirectorFinancial Industries DivisionRulings Directorate