CRA finds that s. 83(2.1) (then the s. 87(2)(z.1) exclusion) would apply where corporate life insurance proceeds (giving rise to a CDA addition) were used for a loan repayment rather than distribution

Opco A used the proceeds of a recently-purchased policy on the life of its principal shareholder (now deceased) to repay a $100,000 loan from an arm’s length corporation (Opco B), with Opco A then being sold for $10,000 by the surviving spouse to Opco B, amalgamated with it and with Amalco promptly paying a purported $100,000 capital dividend to its shareholder.

CRA indicated that s. 87(2)(z.1) excluded the $100,000 CDA of Opco A from the CDA of Amalco given that s. 83(2.1) would have deemed a purported capital dividend paid by Opco A immediately before the amalgamation to be a taxable dividend:

• First, “one of the main purposes of the acquisition of the shares of Opco A by Opco B was to acquire Opco A’s capital dividend account”.
• Second, s. 83(2.3) did not exclude the application of s. 83(2.1) because the proceeds of the policy were fully used by Opco A to repay the loan prior to the amalgamation, signifying that the proceeds were not used as described in s. 83(2.3), namely, to distribute the proceeds of a life insurance policy.
• Third, s. 83(2.4) also did not exclude the application of s. 83(2.1) because, pursuant to s. 83(2.4)(b), substantially all of the CDA account of Opco A consisted of amounts that were in its CDA account before it became related to Opco B.

Neal Armstrong. Summary of 18 September 2025 Roundtable, 2025-1067941C6 - CLHIA 2025 - Q.3 under s. 83(2.3).