12 April 1995 Internal T.I. 9500817 - RETIREMENT BENEFITS FUNDED WITH AN INSURANCE POLICY

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

	Whether payment of a non-registered pension is taxable to 	recipient.

Position TAKEN:

Taxable per 56(1)(a)(i)

Reasons FOR POSITION TAKEN:

56(1)(a)(i)

				April 12, 1995

St. John Tax Services	Headquarters
	126 Prince William Street	D. Duff
	Saint John, New Brunswick		(613) 957-8953

Attention: Annette Melanson

			7-950081

Retirement Benefits funded with Insurance Policy

This is in reply to your request received by facsimile on January 12, 1995 and further to the telephone conversation of April 3, 1995 (Melanson/Duff), wherein you described an arrangement to pay a pension and requested our opinion on whether amounts received by the beneficiary of the plan must be included in his income.

From a review of the facsimile and your telephone conversation, our understanding of the plan is as follows:

A corporate employer agrees to pay a pension to an employee on retirement. The corporation acquires an insurance policy on the life of the employee and assigns it to a lender (bank or trust company). When the corporation is required to pay the pension, it receives loan advances from the lender. On the death of the employee, the proceeds of the insurance policy is used to repay the loan.

You indicated that an agent was promoting these plans with the argument that the amounts received by the retired person would not be taxable, and requested that we address that issue only. In this situation it is our opinion that the payment of the pension to the retired employee would be pension income to him and must be included in income pursuant to subparagraph 56(1)(a)(i) of the Income Tax Act. As requested we have restricted our response to this question and, at this time, do not have any comments on the tax treatment to the corporation or whether the arrangement is a retirement compensation arrangement. A determination of these other issues would require a review of all of the facts.

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch