Principal Issues: Can the CRA provide details on its review of tax promoter schemes and, in particular, provide details on the types of strategies under review that use insurance products to create certain tax benefits?
Position: Please refer to response.
Reasons: Response provided by CRA Compliance Programs Branch.
a refund of premiums on death under a life insurance policy can increase the CDA of the corporate owner
262
Principal Issues: Whether or not a payment under a particular life insurance policy would be considered proceeds of a life insurance policy in consequence of death for purposes of the definition of “capital dividend account” in subsection 89(1) of the Act.
Submitted by narmstrong on Fri, 08/21/2020 - 02:32
the two components received under a “face amount plus fund value” universal life policy are included in computing the corporate policy owner’s CDA
A universal life (UL) policy (referred to as “face amount plus fund value”) purchased by Opco as an exempt policy upon the life of its...
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Principal Issues: Whether the "fund value" portion of a payment made under an exempt single-life life insurance policy by an insurer to a corporation as a consequence of the death of the life insured under the policy is "proceeds of life insurance" for purposes of subparagraph (d)(ii) of the definition of capital dividend account in subsection 89(1).
Position: It is always a question of fact whether a payment under any particular life insurance contract is "proceeds of a life insurance policy" which can only be determined by examining the facts of the particular situation. In a particular fact situation where the "fund value" reflects the balance of the investment accounts within an exempt single-life life insurance policy, the "fund value" would generally be considered to be proceeds of life insurance for purposes of subparagraph (d)(ii) of the definition of capital dividend account in subsection 89(1).
Reasons: The phrase "proceeds of a life insurance policy" is not defined in the Act. The investment account value under an exempt life insurance policy is a component of the policy that is considered within the scope of the exempt policy rules in section 306 of the Regulations, as is the case for the face value portion of the policy. The scheme of these rules generally provide for the taxation of amounts received by a policyholder out of the policy prior to the death of the life insured under the policy, but on a tax-free basis where they are paid out as a consequence of the death of the life insured.
an interest in a related segregated fund trust was a capital property
230
Principal Issues: Can an interest in a related segregated fund trust be transferred to a corporation under section 85?
Position: An interest in a segregated fund trust can generally be transferred to a corporation under section 85.
Reasons: An interest in a related segregated fund trust is generally considered capital property and as such, eligible property as defined in subsection 85(1.1) for purposes of subsection 85(1).
deemed proceeds arising on death from a jointly owned whole life policy turns on agreement terms and valuation principles
337
Principal Issues: Can the CRA confirm the fair market value of the policy to a corporation as determined by subsection 70(5.3) is the cash surrender value pursuant to the co-ownership agreement?
Submitted by narmstrong on Thu, 08/20/2020 - 03:26
use of notes in hybrid pipelines to fund estate taxes or other liabilities
After noting that in 2018-0767431R3, the amount of the pipeline note paid in any single quarter in the first post-amalgamation year was not to...
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Principal Issues: 1. What is the maximum repayment amount per quarter or per annum that a corporation (debtor) can make to the holder (creditor) of the "pipeline note" that will not cause the application of subsection 84(2)? 2. Can the holder of the "pipeline note" borrow funds from the corporation in order to pay its liabilities during the period in which the "pipeline note" is being repaid and not have subsection 84(2) apply?
Position: 1. General comments provided. We can confirm whether or not the pipeline loan repayment schedule causes the deemed dividend rules in subsection 84(2) to apply in the context of an advance income tax ruling. 2. General comments provided. We can confirm whether or not a debt between the corporation and the holder of the "pipeline note" that is separate from the "pipeline note" causes the deemed dividend rules in subsection 84(2) to apply in the context of an advance income tax ruling.
Reasons: A complete analysis of all the relevant facts and circumstances is required in order to conclude on the application of subsection 84(2) to particular taxpayers.
generally, not value for private company voting rights
222
Principal Issues: Follow-up to ITTN 44 and 2009 British Columbia Tax Conference. In the context of an estate freeze of a private corporation, does it continue to be the CRA's position that no premium will be applied to controlling non-participating preference shares issued to protect the economic interest of the freezor in the corporation?
Position: No change in position. Generally no control premium in circumstances described.
Section 148; definition of "capital dividend account" in subsection 89(1)
Principal Issues: What is the status of the Income Tax Folios that will replace IT-430R3 and IT-87R2?
Position: IT-430R3 will not be replaced with an income tax folio. We are currently working on the income tax folio that will update and replace IT-87R2, as resources permit.
Reasons: Income Tax Folio S3-F2-C1, Capital Dividends covers all of the components on the capital dividend account, including the life insurance component. The life insurance component covers information that was in IT-430R3 and has been updated. It was considered to be an inefficient use of resources to create a separate folio to deal with a single component of the capital dividend account. The general information contained in IT-87R2 is considered to be of relevance to a broad audience so we are committed to publishing an income tax folio that will contain updated content on the topics covered in IT-87R2.
Principal Issues: Can CRA provide an update on the status of the draft newsletter on annuities and when it is expected to be published?
Position: Registered Plans Directorate anticipates that the final version of the newsletter will be on the Canada Revenue Agency website in the summer of 2020.
Reasons: Due to delay in the discussions between the RPD and other government regulators relative to their pension benefits standards legislation.
