I-3 - Taxation Act

Section 832.23 Disposition versions

2006-03-01

832.23. The rules set out in the second paragraph apply where

(a)  a stakeholder receives a conversion benefit, in this section referred to as the “relevant conversion benefit”, because of the interest of any person in an insurance policy;

(b)  the stakeholder referred to in subparagraph a makes a payment of an amount, otherwise than by way of a transfer of a share that was received by the stakeholder as all or part of the relevant conversion benefit and that was not so received as a taxable conversion benefit, to a particular individual

i.  who has received benefits under the insurance policy referred to in subparagraph a,

ii.  who has, or had at any time, an absolute or contingent right to receive benefits under the insurance policy,

iii.  for whose benefit insurance coverage was provided under the insurance policy, or

iv.  who received the amount because an individual satisfied the condition in subparagraph i, ii or iii;

(c)  it is reasonable to conclude that the purpose of the payment referred to in subparagraph b is to distribute an amount in respect of the relevant conversion benefit to the particular individual referred to in that subparagraph;

(d)  either the main purpose of the insurance policy referred to in subparagraph a was to provide retirement benefits or insurance coverage to individuals in respect of their employment with an employer, or all or part of the cost of insurance coverage under the insurance policy had been borne by individuals other than the stakeholder referred to in subparagraph a;

(e)  section 832.21 does not apply to the relevant conversion benefit; and

(f)  one of the following subparagraphs applies, namely,

i.  the particular individual referred to in subparagraph b is resident in Canada at the time of the payment referred to in that subparagraph, the stakeholder referred to in subparagraph a is a person the taxable income of which is exempt from tax under this Part and the payment would, if this chapter were read without reference to this section, be included in computing the income of the particular individual,

ii.  the payment referred to in subparagraph b is received before 7 December 1999, and the stakeholder referred to in subparagraph a elects by notifying the Minister in writing, on a day that is not more than six months after the end of the taxation year in which the stakeholder receives the relevant conversion benefit, or a later day acceptable to the Minister, that this section applies in respect of the payment,

iii.  the payment referred to in subparagraph b is received after 6 December 1999 and the payment would, if this chapter were read without reference to this section, be included in computing the income of the particular individual referred to in that subparagraph and the stakeholder referred to in subparagraph a elects by notifying the Minister in writing, on a day that is not more than six months after the end of the taxation year in which the stakeholder receives the relevant conversion benefit, or a later day acceptable to the Minister, that this section applies in respect of the payment, or

iv.  the payment referred to in subparagraph b is received after 6 December 1999 and the payment would, if this chapter were read without reference to this section, not be included in computing the income of the particular individual referred to in that subparagraph.

The rules to which the first paragraph refers are the following:

(a)  subject to subparagraph f, no amount is, because of the making of the payment, deductible in computing the stakeholder’s income;

(b)  except for the purposes of this section and without affecting the consequences to the particular individual of any transaction or event that occurs after the time that the payment was made, the payment is deemed not to have been received by, or made payable to, the particular individual;

(c)  the corporation that conferred the relevant conversion benefit is deemed to have paid to the particular individual at the time the payment was made, and the particular individual is deemed to have received at that time, a dividend on shares of the capital stock of the corporation equal to the amount of the payment;

(d)  all obligations that would, but for this section, be imposed by this Part and the regulations on the corporation referred to in subparagraph c because of the payment of the dividend referred to in that subparagraph apply to the stakeholder as if the stakeholder were the corporation, and do not apply to the corporation;

(e)  where the relevant conversion benefit is a taxable conversion benefit, except for the purposes of this section and the purpose of determining the obligations imposed by this Part and the regulations on the corporation because of the conferral of the relevant conversion benefit, the stakeholder is deemed, to the extent of the fair market value of the payment, not to have received the relevant conversion benefit; and

(f)  where the relevant conversion benefit was a share received by the stakeholder, otherwise than as a taxable conversion benefit, the following rules apply:

i.  where the share is, at the time of the payment, capital property held by the stakeholder, the amount of the payment shall, after that time, be added in computing the adjusted cost base to the stakeholder of the share,

ii.  where subparagraph i does not apply and the share was capital property disposed of by the stakeholder before that time, the amount of the payment is deemed to be a capital loss of the stakeholder from the disposition of a property for the taxation year of the stakeholder in which the payment is made, and

iii.  in any other case, subparagraph a shall not apply to the payment.

2001, c. 53, s. 167.