| 19(1) | File No. 5-8097 |
| A. Humenuk | |
| (613) 957-2135 |
June 27, 1989
Dear Sirs:
Re: Gifts of Life Insurance Policies as Charitable Donations
Your letter of May 11, 1989, concerning the valuation of a gift of a life insurance policy has been referred to this Division for reply. In your letter, you question the basis for our position stated in Interpretation Bulletin IT-244R2 of valuing a charitable donation of a life insurance policy based on the cash surrender value of the policy plus accumulated interest and dividends less any policy loans outstanding.
You state that the "amount of a gift" is not defined in the Act and that the "value of the policy" is not defined for the purpose of the credit available for a charitable donation. In your view, the amount of the gift should be valued as the greater of the adjusted cost base of the policy as defined in section 148 of the Act and the cash surrender value at the time of the absolute assignment to the donee.
As explained in Interpretation Bulletin IT-r "Gift in Kind to Charity and Others", a gift in kind is generally valued at the fair market value of the gift as of the date of the donation rather than at the cost to the donor. While other factors, such as the health of the insured, may affect the fair market value of a policy, it is our view that such factors are not relevant in determining the value of the policy to the donor in the context at hand. The value of the policy as defined in paragraph 148(9)(g) of the Act most closely represents the fair market value to the donor at the time of absolute assignment of the policy. Accordingly, it is our view that paragraph 3 of IT-244R2 reflects the correct method of valuing the gift.
In our view, the adjusted cost base (ACB) if a policy is not relevant in determining the amount of the gift since the ACB represents the cost of acquisition rather than the value at any particular point in time.
We trust that our comments will be of assistance to you.
Yours truly,
for DirectorSmall Business and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch