On July 23, 2026, the Department of Finance released a set of draft legislative proposals and amendments to the Income Tax Act (Canada) (the “Act”) for public comment.
Among the proposed changes, the Government of Canada seeks to exempt spousal transfers of life insurance policies from the deemed fair market value rules under s. 248(35) of the Act.
What are the deemed fair market value rules?
Ottawa enacted the deemed fair market value rules in 2002 as part of a series of measures introduced to combat tax-shelter gifting arrangements and inflated donation receipts. The rules generally apply to non-cash gifts. Originally intended to counter “art flips,” the rules have found new life almost 20 years later with the advent of highly speculative assets like cryptocurrency, digital collectibles, and even tickets to marquee sporting events and concerts.
Under these rules, if a donor had owned property for less than three years (or for less than 10 years, if one of the main reasons for acquiring the property was to donate it) and gifted the property to charity, the eligible amount of the gift is deemed to be the lesser of the actual fair market value of the property and its cost to the donor.
Subsection 248(37) of the Act exempts gifts of certain property from these rules, including: gifts of real property situated in Canada, gifts of inventory, gifts of publicly traded securities, and gifts arising on death.
Furthermore, s. 248(37)(g) of the Act currently exempts property that a donor has received on a tax-deferred rollover basis in specific non-arm’s length transactions (i.e.. spousal rollovers and transfers of farm and fishing property).
However, other types of property that a donor might receive on a rollover basis from a non-arm’s length party continue to be subject to the deemed fair market value rules in s. 248(35). One such type of property is a life insurance policy transferred from the donor’s spouse.
What is Ottawa proposing to change?
The Government of Canada proposes to change this situation by expanding the list of exemptions in the Act. The Government specifically seeks to amend subsection s. 248(37)(g) to add references to ss. 148(8.1) and (8.2), which are the rollover provisions for certain spousal transfers of life insurance policies.
The effect of this change, if enacted, is that life insurance policies received by a spouse through a qualifying spousal rollover will receive the same treatment under the gift valuation rules as property received in other exempted types of rollovers and will not be subject to the three-year or 10-year gift rule.
If Parliament follows through with the amendment, it will be good news for Canadian households where one spouse gives, and the other spouse receives, a life insurance policy that has appreciated in value in a relatively short amount of time and where the transferee spouse intends to donate that policy to charity. This spouse can expect a bigger donation receipt.
The change, if passed, is equally expected to benefit charities, which could see an uptick of donations of policies of life insurance.
Will Canadians have a say in the proposed change?
The Government of Canada has invited the public to provide feedback on all its July 2026 proposals by September 4, 2026. Canadians can do so by e-mailing their comments to [email protected] before this deadline.
If adopted by Parliament, this specific amendment will come in force on Royal Assent.
Have questions about this article? Is your charity expecting a gift of life insurance? Does your charity need to update its gift acceptance policy? A lawyer from Miller Thomson’s award-winning Charities and Non-Profits Group can assist.
