CRA Interpretation: Tax Implications Of A Contractual Right To "Split" A Multiple Life Policy

Introduction

The Canada Revenue Agency (the "CRA") recently released an interesting interpretation (2015-0608261E5 (the "Interpretation")) regarding the "splitting" of a universal life insurance policy between the two lives insured under the policy.  More particularly, the CRA was asked whether there is a disposition under subsection 148(1) of the Income Tax Act (Canada) (the "Act") when the holder of a universal life insurance policy exercises his or her contractual right (under the policy) to split the policy between the two lives insured, and whether paragraph 148(10)(d) of the Act would otherwise apply to exempt such a disposition.  Additionally, the CRA was asked how the exemption test policy, accumulating fund and adjusted cost basis of the two policies would be determined if the policies were to be "split".