CALU submission to Finance on LI in LI trusts

CALU submission to request an amendment to the Income Tax Act in response to Canada Revenue Agency (CRA) interpretations relating to the ownership of life insurance by a life interest trust. The CRA has taken the position that, where the terms of a trust permit the trustee to fund a life insurance policy, the trust will not meet the conditions set out in subparagraph 70(6)(b)(ii) or 73(1.01)(c)(i) to be a spousal or common-law partner trust. In particular, the CRA’s view is that if the terms of the trust permit the payment of premiums by the trust, this can result in the use of trust property to establish the residual beneficiaries’ rights to funds from the policy during the lifetime of the surviving spouse or common-law partner (i.e., for the benefit of someone other than the spouse or common-law partner). CALU previously made an extensive submission to the CRA in an attempt to modify their views on this matter. However, with the recent release of Income Tax Folio S6-F4-C15 it is clear that a legislative amendment is needed to avoid the potentially onerous tax implications of their interpretation.