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ARTICLE · 09 JULY 2015

FAPI And Offshore Captive Insurance Arrangements

McCarthy Tétrault
McCarthy Tétrault
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McCarthy Tétrault

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According to the Department of Finance, certain taxpayers were quick to identify deficiencies in paragraphs 95(2)(a.21) and (a.22).

CanadaTax
Angelo Discepola
Angelo Discepola
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Pre-2014 Regime

Paragraph 95(2)(a.2) of the Income Tax Act (Canada)[1] was introduced as a measure to restrict the tax benefit associated with transferring income from the insurance of a risk in respect of a person resident in Canada, property situated in Canada or a business carried on in Canada (each a Canadian Risk) to an offshore captive insurance entity. In short, paragraph 95(2)(a.2) includes in income from a business other than an active business (which is included in foreign accrual property income, or FAPI) a foreign affiliate’s income from the insurance of Canadian Risks (and any income that pertains or is incidental to that income). Paragraph 95(2)(a.2), however, contains a de minimis exception that allows a controlled foreign affiliate (CFA) to earn up to 10% of its income from Canadian Risks without that income being subject to FAPI.

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