G. Thornley (613) 995-2455
January 29, 1986
Dear Sirs:
This is in reply to your letter of November 12, 1985 and further to our telephone conversation of January 27, 1986 concerning the proceeds of a life insurance policy used to acquire an annuity.
In the specific circumstances outlined in your letter
XXX
Our comments
A payment made as a consequence of the death of the person whose life was insured under a policy acquired before December 2, 1982 is not a disposition pursuant to subparagraph 148(9)(c)(ix) of the Income Tax Act (the "Act") and therefore is not subject to tax. However, where insurance proceeds payable at death are paid in installments under a settlement option, the interest element in such payments is regarded as income pursuant to paragraph 56(l)(d.1) of the Act, or paragraph 56(l)(d) of the Act if the contract is a prescribed annuity contract as described in Section 304 of the Income Tax Regulations.
We trust that this is the information you require.
Yours truly Wm. R. McColm
for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch