The Canada Revenue Agency (CRA) has issued several interpretations indicating that the ownership and funding of life insurance within a spousal or alter ego/joint partner trust will “taint” the trust, resulting in certain negative tax consequences. In April 2014 CALU made a request to the CRA for a technical interpretation relating to a specific fact pattern where insurance was acquired within a spousal or joint spousal trust. We asked the CRA to confirm that in the fact situation outlined in the letter, that the deferral of gain on capital property transferred to such trusts would be available pursuant to subsections 70(6) or 73(1.01) respectively of the Income Tax Act.

We have now received the CRA’s response by letter dated November 16, 2015. Unfortunately the CRA continues to take the view that the ownership and payment of premiums by such trusts will result in those trusts not qualifying as a spousal, alter ego or joint partner trust. In their response they state “we consider the payment of premiums by the trust to be property used to establish the residual beneficiaries’ rights to funds from the policy that will be realized after the death of the spouse.”

View the response

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