CRA confirms the double-erosion of CDA additions where there are multiple corporate beneficiaries of a policy that was transferred at its CSV prior to 2016
Email this ContentMr. X transferred a $2,000,000 term-to-100 life insurance policy in January 2015 to his wholly owned corporation, Holdco, for cash proceeds equal to its fair market value of $400,000. Under s. 148(7), the proceeds were deemed to be the lesser of the policy's adjusted cost basis (ACB) of $126,000 and its cash surrender value (CSV), of nil.
Two wholly owned subsidiaries of Holdco, Opco A and Opco B, were each designated as beneficiaries for $1,000,000. Immediately before Mr. X's death, the ACB of the policy was $298,000.
After stating that “where there are multiple corporate beneficiaries designated under a life insurance policy, each beneficiary must apply paragraph (d) of the definition of CDA independently,” CRA computed the CDA inclusion for each of the Opcos as follows:
|
Opco A |
Opco B |
|
|
S. (d)(ii) addition: proceeds received in consequence of death |
$1,000,000 |
$1,000,000 |
|
S. (d)(iii) reduction: ACB of Holdco’s interest |
($298,000) |
($298,000) |
|
S. (d)(v) reduction: FMV of consideration given ($400,000) minus the greater of the CSV (nil) and ACB at transfer time ($126,000) |
($274,000) |
($274,000) |
|
S. (d)(vi) reduction: lesser of FMV of consideration given ($400,000) and transfer-time ACB ($126,000) minus CSV at transfer time (nil) minus inapplicable adjustment for negative ACB |
($126,000) |
($126,000) |
|
CDA inclusion |
$302,000 |
$302,000 |
It can be seen that as a result of the above CRA policy for the separate application of the s. (d) CDA adjustments that, in this example, there is a double deduction not only of the policy ACB of $298,000 but also of the $400,000 adjustment for the previous use of the old s. 148(7) transfer rule. If either Opco A or B had been the sole beneficiary, the CDA inclusion would have been $1,302,000 ($2,000,000 - $298,000 - $400,000) rather than an aggregate of $604,000.
Neal Armstrong. Summary of 5 May 2026 CALU Roundtable Q. 5, 2026-1089351C6 - Definition of Capital Dividend Account in Subsection 89(1) under s. 89(1) – CDA – (d).