Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: A father owns a life insurance policy on the life of a child (Child A). Child A is an adult but is improvident in financial matters. Child B is Child A’s adult sibling and is viewed by the father as being very responsible regarding financial matters. Will the transfer of the policy to Child B qualify for a rollover under subsection 148(8)?
Position: Yes.
Reasons: 148(8).
CALU Roundtable - May 2018
Question 3 - Subsection 148(8) -Transfer of an insurance policy from a parent to child
Background
Subsection 148(8) provides for a rollover of a life insurance policy where an interest in the life insurance policy is transferred to the policyholder’s child for no consideration and a child of the policyholder or a child of the transferee is the life insured under the policy. Technical interpretation # 2004-0065441C6 confirmed that a rollover under subsection 148(8) would not apply to a transfer of a life insurance policy under which more than one person is insured regardless of whether all the lives insured meet the definition of child under this provision. In at least two other technical interpretations (9103135 dated August 1, 1991 and 58204 dated July 11, 1989) the CRA has indicated that in order to qualify for the rollover, the child must be the only life insured under the policy. The CRA has also confirmed that the rollover would apply where a child is the only remaining life insured under a joint last to die contract with a parent and child, under which the child is a successor owner. (#2005-0116681C6 dated May 3, 2005).
Consider the following situation: Father owns a life insurance policy on Child A’s life. Child A is an adult but is improvident in financial matters. Child B is Child A’s adult sibling and is viewed by father as being very responsible regarding financial matters. Father would like to transfer the policy that insures Child A to Child B. There are no other changes to the terms and conditions of the policy.
Question
Will the transfer of the policy to Child B qualify for a rollover under subsection 148(8)?
CRA Response
Subsection 148(8) of the Act provides that, if an interest of a policyholder in a life insurance policy (other than an annuity contract) is transferred to the policyholder’s child for no consideration and a child of the policyholder or a child of the transferee is the person whose life is insured under the policy, the interest is deemed to have been disposed of by the policyholder for proceeds of the disposition equal to the adjusted cost basis of the interest immediately before the transfer, and to have been acquired by the person who acquired the interest at a cost equal to those proceeds.
In the situation described, it is our view that subsection 148(8) of the Act would apply to the transfer of Father’s interest in the life insurance policy on the life of Child A to Child B.
We are not certain that the results described above are consistent with the intended policy of subsection 148(8), and it is therefore our intention to bring the matter to the attention of the Department of Finance so that it may consider whether any legislative amendments are required.
Sylvie Danis
2018-074583
May 8, 2018
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