| 923298 | |
| Michèle Trotier | |
| (613) 957-3494 |
December 10, 1992
Halifax District OfficeHead OfficeFinancial Industries Division
Attention: Sara Barton
24(1)
This is in reply to your round trip memorandum dated November 2, 1992 to which was attached a letter dated September 23, 1992 from 24(1) requesting certain clarifications with respect to the application of subsections 148(8.1) and (8.2) of the Income Tax Act ("Act").
Their first statement was as follows:
Policyholder(transferor) may elect a transfer not to be a rollover; in which case the transfer will be processed pursuant to subsection 148(7) of the Act. Our comments are as follows:
The provisions of subsection 148(8.1) of the Act will not apply where an election is made in the policyholder's return of income under Part I not to have the subsection apply. A similar election can also be found in subsection 148(8.2) of the Act.
In circumstances where, other than by virtue of a deemed disposition under paragraph 148(2)(b) of the Act, the interest of the policyholder in the life insurance policy is disposed of by way of a gift or by operation of law only to any person, or in any manner whatever to any person with whom the policyholder is not dealing at arm's length we confirm that the provisions of subsection 148(7) of the Act will apply where the policyholder has elected not to have the provisions of subsection 148(8.1) of the Act apply. Where an election is made not to have the provisions of subsection 148(8.2) of the Act apply the provisions of subsection 148(7) of the Act will not have application by virtue of the exclusion therein for dispositions deemed pursuant to paragraph 148(2)(b) of the Act.
Their second statement was as follows:
A transfer to a spouse will not be a rollover pursuant to subsection 148(8.1) or (8.2) of the Act if one of the spouses was living outside of Canada at the time of the transfer.
Our comments are as follows:
Paragraph 148(8.1)(b) of the Act requires that both the policyholder and the transferee be resident in Canada at the time of the transfer. The transferee is described in subparagraphs 148(8.1)(a)(i), (ii) and (iii) of the Act.
Subsection 148(8.2) of the Act applies with respect to a policyholder who was resident in Canada immediately before the policyholder's death provided the policyholder's spouse was resident in Canada immediately before the policyholder's death. Consequently both spouses must be resident in Canada at the time of the transfer for subsections 148(8.1) and (8.2) of the Act to apply.
Their third and fourth statements were as follows:
In order for a transfer to a common-law spouse to qualify as a rollover pursuant to subsection 148(8.1) of the Act, it has to be pursuant to a court order for the support and maintenance of the transferee. In situations where such a transfer occurs without a court order, it will be a transfer according to subsection 148(7) of the Act even if the transferee is the main life insured.
Subsection 148(8.2) of the Act will not apply in the case of a common-law spouse.
Our comments are as follows:
We confirm that where such a transfer does not meet the requirements set out in subparagraph 148(8.1)(a)(iii) of the Act it cannot be made pursuant to subsection 148(8.1) of the Act.
Where the interest of the policyholder in the life insurance policy is disposed of by way of a gift or by operation of law only to any person, or in any manner whatever to any person with whom the policyholder is not dealing at arm's length we confirm that the provisions of subsection 148(7) of the Act will apply even if the transferee is the life insured under the policy since there is no restriction to that effect.
The present wording of subsection 148(8.2) of the Act does not apply with respect to a common-law spouse.
However, we would like to point out certain proposed amendments that were introduced recently in the House of Commons. It has been proposed to delete subparagraph 148(8.1)(a)(iii) of the Act and to add a new subsection 252(4) extending the meaning of "spouse" to a common-law spouse. Both amendments would be applicable after 1992. The court order requirement presently set out in subparagraph 148(8.1)(a)(iii) will no longer be present after 1992 provided the proposed amendments become law.
The proposed new subsection 252(4) will apply for purposes of the Act. Consequently, subsection 148(8.2) of the Act, after 1992, would also apply to a common-law spouse provided the proposed amendments become law because of the extended meaning of "spouse" as it is proposed in the new subsection 252(4).
We are enclosing a copy of the explanatory notes relating to those proposed amendments and a copy of the draft subsection 252(4) for your information.
We hope our comments will be of assistance.
F. Lee WorkmanSection ChiefFinancial Institutions SectionFinancial Industries DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch