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:
Meaning of maximum value with respect to shares of subsidiaries of an insurer as that term is used in the definition of "valuation" in subsection 2405(3) of the Income Tax Regulations
Position: Means book value
Reasons:
This is the maximum value which has been reported in the balance sheet prepared for OSFI.
February 10, 1998
TORONTO EAST TAX SERVICES HEADQUARTERS
Appeals Division Michele Trotier
Attention: Bill Tryon
980271
"Valuation" as defined in subsection 2405(3) of the Income Tax Regulations ("Regulations")
With regard to our September 18, 1995 and May 15, 1996 memoranda to Headquarters Appeal (our file references 951865 & 960452) which dealt with the issue of the "valuation" of shares of a subsidiary of a non-resident property and casualty insurer pursuant to paragraph (g) of the definition of "valuation" in subsection 2405(3) of the Regulations you asked whether we have any further comments with respect to the determination of the maximum value which is referred to therein. Paragraph (g) of that definition refers to a "maximum value of the property as determined for the purposes of the relevant authority or that would have been so determined if the owner had been a life insurer resident in Canada...".
In determining the maximum value of shares pursuant to paragraph (g) of the definition of "valuation" in subsection 2405(3) of the Regulations we continue to be of the view, as indicated in our May 15, 1996 memorandum, that even though an insurer other than a life insurer reported a value for purposes of the relevant authority (the Office of the Superintendent of the Financial Institutions ("OSFI") for purposes of this memorandum) it nevertheless would have to consider a maximum value which would have been determined if it had been a registered life insurer resident in Canada. We note that a similar requirement is also found in paragraph (e) of the definition of "valuation" in subsection 2405(3) of the Regulations except that the reference to a maximum value has been replaced by a reference to book value. It is our understanding that when this legislation was drafted there may not have been any guidelines by OSFI to compute these values for non-resident insurers and one could therefore appreciate the basis for the requirement in these paragraphs to compute a value as if the insurer had been a resident life insurer for which OSFI had guidelines.
We are of the view that the maximum value referred to in paragraph (g) of the definition of "valuation" in subsection 2405(3) of the Regulations with respect to the shares of the subsidiary referred to above is the book value (synonymous of carrying value) reported on the balance sheet prepared for the purposes of OSFI; that is the financial statement reporting purpose as would also be the case for paragraph (e) referred to above.
We also note that the Department of Finance has proposed amendments in 1997 with respect to insurance companies including the repeal of the definition of "valuation" referred to above and the introduction of the determination of the value of a property for purposes of Part XXIV of the Regulations being tied to the cost or carrying value of the property. The carrying value is proposed to be the value accepted on the insurer's balance sheet by OSFI.
We trust that the above comments will be of assistance.
F. Lee Workman
Section Chief
Financial Institutions Section
Financial Industries Division
Income Tax Rulings and
Interpretation Directorate
Policy & Legislation Branch
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