G. Thornley
(613) 957-210119(1)
June 38, 1989
Dear Sirs:
Re: Shareholder or Employee Benefits
This is in reply to your letter of May 4, 1989, in which you outline a hypothetical involving the transfer of a corporate owned life insurance policy from a corporation to an employee or shareholder at a time when the cash surrender value of the policy is nil. It is your view that a benefit has not been conferred nder either paragraph 6(1)(a) or subsection 15(1) of the Income Tax Act (the "Act") on an employee or shareholder, as the case may be, providing policy ownership is transferred before the sixteenth anniversary of the policy because the cash surrender value of the policy is zero at the date of transfer.
You as if we concur with your interpretation.
OUR COMMENTS
We are unable to comment on the specific facts of your example as we have not had a copy of the particularicy to review and, as a matter of practice, this type of examination is normally conducted by staff of a District Taxation Office. We do, however, offer the following comments:
(1) the definition of value in paragraph 148(9)(g) of the Act is only for purposes of section 148, section 12.2 and paragraph 56(1)(d.1) of the Act as set out in the preamble to subsection 148(9) of the Act.
(2) the value to an employee or shareholder of an insurance policy acquired in circumstances similar to those of your example would be determined by reference to the fair market value of the policy at the time of the transfer having regard to all pertinent information such as: the age and health of the individual, the paid-up option in the policy, the cash surrender value of the policy arising in later years (and presumed to have been earned partly in earlier years), and the total amount of premiums paid by the corporation on the policy to the date of the transfer.
We trust our comments will prove helpful.
Yours truly,
E.M. Wheeler for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch