Charitable donation of life Insurance and the Insurance Act, illegal???

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  1. Hi Richard

    Great post.

    I’ve also wondered why charities are the exception to the trafficking provisions and who would win if there was a battle. I came down on the side of charities with the conclusion that if the scenario you present were to occur, the existing provision with revenue Canada that specifically allows life policies as charitable gifts would prevail as an exception over the trafficking provisions.

    Of course we’d need to see how this would play out with the lawyers but the primary reason I think it would go in favour of charities is that the trafficking provisions appear to be primarily intended to prevent the conversion of existing life policy benefits into tax free investments for the benefit of 3rd parties who are outside of the original insurance contracts. And all that that entails.

    Put another way, ‘trafficking’ in life policies creates problems for the CRA and provincial revenue ministries whereas gifts of life policies to charities (within the confines of strict gifting rules) does not.

    Gifting life insurance policies is also a really tax-smart way for individuals and the private sector to help finance the social sector by leveraging small investments into gifts which can become massive which in turn helps to alleviate other political financial pressures but that’s a discussion for another day.



    • Jack you are sadly wrong. The constitutional authority for the federal income tax act is found in section 91 paragraph 3 of the Constitution Act, 1867, which assigns to the federal Parliament only the power over the raising of Money by taxing income. The Income Tax Act has absolutely no power over property law which is in fact an area of provincial jurisdiction. The ITA defines the taxable consequences and benefits of a charitable donation and also legislate Charities’ right to issue tax receipt.Please note again any owner can donate a policy or sell a policy to a third party. If the transaction is initiated by the policy owner this cannot be considered trafficking as their are no restrictions as to their right to enjoy the property of their life insurance in any provinces. However if any third party other than insurers solicits the transfer of a policy, this falls under the trafficking provision including charities. And again in provinces such as Ontario where this provision always existed, i don’t consider this an issue because customs can be a source of law and therefore customs indicate that charities are excluded from the application of this prohibition. However such customs never existed in Saskatchewan and the law would have to apply verbatim…

  2. Thanks Richard

    Donations of life policies to charities aren’t about to threaten our tax collector’s base of revenue so it’s unfortunate that Saskatchewan doesn’t have the custom of allowing charities to solicit for life insurance as is the case in other provinces such as here in Ontario. Particularly given that as a province Saskatchewan is so well known for it’s generousity. This sounds like it could trouble in the making as you suggest and should be addressed even if it’s a remote possibility. Perhaps a quick email to your local MPP is in order?

    As you mention, life policies themselves aren’t federal jurisdiction however, the tax treatment of dividends and other income within policies, rules on what is defined as tax-exempt, not tax-exempt etc. and of course such things as the deductibility of the cost of loans taken out to pay premiums etc. are very much in the CRA’s wheelhouse and are subject to scrutiny and change. I’m suggesting that it’s these areas that raise red flags for both the CRA and provincial ministries of revenue when trafficking in policies and that these areas are non-issues when insurance policies are made charitable gifts under the current rules.



    • Jack, i don’t understand why you would think that CRA has any interest in the trading or selling of life insurance policies. Have you ever seen a communication of CRA warning Canadians against viatical settlements for example? I would be surprised because this is not the responsibility of CRA. Their only responsibility is to collect taxes. As for Saskatchewan, as I stated they never had the trafficking provision in their Insurance Act. So they could not develop the custom of ignoring a provision which did not exist… and don’t worry I am in touch with Saskatchewan MLA and there is now a lot of opposition to Bill 177. Finally the risk is not that life insurance donation be prohibited. The risk is to have a member of a family impoverished from a donation suing for the cancellation of the donation on the basis that the charity was engaged in trafficking when it procured the change of ownership of the life insurance policy for itself..

      • Hi Richard

        I agree. As I mentioned, the CRA is unlikely to have an interest in the trading or selling of insurance policies. In fact, their interest simply lies with the taxable results of a select few of these and other related transactions that are now considered to be rogue in nature. To that end I’m sure you’ve also seen or heard that some of these schemes have been deemed as avoiding taxation and as such been unceremoniously wound down.
        It’s also good to hear that you’re personally engaged in challenging the oversight of this proposed bill. The owner of a gifted life policy shouldn’t need to be concerned about his or her charitable wishes being challenged. Hopefully you have a wise MLA! Good Luck.



  3. I am just reading this Blog for the first time (as far as I can remember) so here are some updates.

    Firstly the following appeared in March 2016

    Hi Daniel,

    Thanks for talking to me about your experiences with life insurance donations. The resulting story is here:

    Your quotes appear in the section about the challenges of transferring life insurance ownership:

    Appreciate your participation.


    Melissa Shin

  4. Then in November 2016 Melissa updated her article which I then forwarded to the SK Regulator for their Comments

    You may be interested in this follow-up article last week from Melissa Shin in and we would be interested whether at this stage you would have any concerns?

    This is their contact person and I don’t think there was any intention of preventing LifePoint Canada or any other Charities from soliciting for “unwanted” life policies in SK when they “modernized” their Insurance Act.
    We will find out in 2017 when they introduce their Regulations to make the new Act operative.

    Janette L. Seibel
    Financial and Consumer Affairs Authority
    of Saskatchewan
    Phone: (306) 787-2953
    Fax: (306) 798-4425

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