C. Tremblay (613) 957-2139
Dear Sirs:
Re: Subsection 148(8) of the Income Tax Act
This is in reply to your letter of July 23, 1987, in which you request information concerning a rollover under subsection 148(8) of the Income Tax Act (the Act). Specifically, you ask if the policyholder dies, can an interest of the policyholder in a life insurance policy be transferred for no consideration on a rollover basis by his estate to the spouse, child or grandchild assuming that the transferee is the life insured.
Our Comments
In the case of a non-exempt policy, it is our opinion that subsection 148(8) of the Act does not apply on death because the rules, dealing with the death of a holder of an interest in a policy found in paragraphs 148(2)(b) and 148(2)(c) of the Act, apply first. As a result of this timing, subsection 148(8) of the Act would not override these rules. The policyholder is deemed to have disposed of his interest in the policy pursuant to paragraph 148(2)(b) of the Act "immediately before the death".
In the case of an interest in an exempt policy passing on the death of the policyholder to his spouse, child or grandchild, subsection 148(7) of the Act is relevant. However, the rollover provision in subsection 148(8) is not applicable because the interest in the life insurance policy passes from the policyholder to his estate and then to his spouse, child or grandchild. To qualify for the rollover, the transfer must be direct as may occur with an inter vivos gift by the policyholder.
In conclusion, it is our opinion that subsection 148(8) of the Act applies to an "inter vivos" transfer only. We trust the above comments will be of assistance to you.
Yours truly,
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch