(From the July 2026 edition of eFORUM)
By Kevin Wark
While it’s not common, you may have clients who own life insurance policies issued by non-resident insurers — known as “foreign life insurance” — or who are contemplating purchasing a foreign life insurance policy. At the recent Conference for Advanced Life Underwriting (CALU) roundtable held on May 5, 2026, the CRA provided its views on the ownership of foreign life insurance.
While a full review of the roundtable report is recommended, here is a summary of these interpretations.
Designating a beneficiary under a foreign life insurance policy
The CRA was asked to consider a situation in which a Canadian resident, known as Ms. B, owns a foreign life insurance policy and names a Canadian registered charity as the sole designated beneficiary. Upon Ms. B’s death, the policy pays a death benefit directly to the charity.
The CRA was asked to confirm whether the death benefit would qualify as a charitable gift and be treated similarly to other gifts made upon death.
In its response, the CRA noted that the conditions required to qualify this death benefit as a charitable gift made upon death refer to a life insurance policy, regardless of whether the policyholder lived in Canada at the time the policy was issued. The residence of the insurer that issued the policy is also irrelevant.
Accordingly, if all other conditions specified in the Income Tax Act are met, the payment of a death benefit to a charity through a beneficiary designation will be deemed a charitable gift for purposes of the Act. This ruling is good news for clients who wish to direct the proceeds of a foreign life insurance policy to a charity through a beneficiary designation while still obtaining a charitable tax receipt.
Exempt testing of a foreign life insurance policy
The CRA also provided guidance on how the Canadian exempt test rules apply to foreign life insurance policies.
The CRA noted that in order for a foreign life insurance policy to qualify as exempt, the foreign life insurer must follow the same procedures as Canadian life insurers. This includes annual testing of the policy to ensure it continues to satisfy all requirements. Advisors and affected clients should therefore exercise caution and ensure that their foreign life insurance companies and products comply with Canadian income tax laws. Without that oversight, and given the complexity of those laws, owning a non-exempt life insurance policy could lead to adverse tax consequences.
Foreign property reporting rules
Income Tax Act rules require that Canadian taxpayers file an annual report with the CRA if the total fair market value of certain foreign property they own exceeds $100,000 during the year. The CRA confirmed that taxpayers must include the “value” of a foreign life insurance policy when determining whether these reporting rules would apply. Accordingly, taxpayers must report each item of specified foreign property they own once the aggregate cost amount of all such property exceeds $100,000, even if no individual specified foreign property asset exceeds the $100,000 threshold on its own.
Taxpayers who own a foreign life insurance policy can consult their tax advisors to determine whether reporting is required.
Aggressive tax planning with foreign life insurance
The CRA recently issued a tax warning relating to certain tax structures involving offshore insurance products that appear designed to allow shareholders of private corporations to extract corporate surplus on a tax-free basis.
The agency confirmed that it continues to identify, audit and reassess arrangements that use insurance products, or insurance-like products, to gain tax advantages not envisioned by tax policy and legislation.
This warning serves as a reminder to both promoters of these strategies and clients considering entering into these types of structures that the CRA remains focused on challenging any arrangements it views as illegitimate.
In short, the CRA’s recent technical interpretations identify several tax considerations that could apply to Canadians who own or wish to acquire foreign life insurance policies. Affected clients should seek independent and informed tax advice both before acquiring these policies and throughout their ongoing management.
Kevin Wark, LLB, CLU, TEP, is managing partner of Integrated Estate Solutions and a tax advisor to CALU. He is the author of the popular consumer book The Essential Canadian Guide to Estate Planning (3rd ed.), as well as tax guides on corporate-owned life insurance, life insurance transfers, insured buy-sell agreements, and income-splitting strategies, available through Amazon.ca.