Appellant
Respondent
Case Details:
Policy and Surrender: Barbara Pudney purchased a life insurance policy in 1991, paying monthly premiums for 22 years. Upon retirement in 2015 and facing financial difficulties, she surrendered the policy for its cash value of $32,859.18.
Taxation and Reassessment: In 2016, the insurance company issued a T5 slip, reporting $27,225.14 as "Other Income" for Pudney in 2015. Pudney included this in her income tax return but also deducted the entire cash value received as an "other deduction." The Canada Revenue Agency (CRA) disallowed this deduction and reassessed her, resulting in additional taxes of approximately $11,415 plus interest.
Tax Court Appeal: Pudney appealed the CRA's reassessment to the Tax Court of Canada, which dismissed her appeal. She then appealed this decision to the Federal Court of Appeal.
Key Legal Points:
Adjusted Cost Basis (ACB): The taxable gain was the difference between the cash value received and the policy's ACB. The ACB is calculated by subtracting the net cost of pure insurance from the total premiums paid. Pudney's lack of understanding of these terms and her belief that the insurance was non-taxable were key factors in the case.
Income Tax Act Provisions: The Income Tax Act requires the inclusion of the difference between the surrender value and the ACB in income, but does not allow deduction of the entire surrender value.
Court's Conclusion:
Court
Federal Court of AppealCase Number
A-94-19Practice Area
TaxationAmount
Winner
RespondentTrial Start Date
26 February 2019Download documents