CRA rules on transactions to rectify for an overlooked life insurance policy of an amalgamated target

An estate sold a private company (Canco 1) to a third party purchaser, which promptly amalgamated with Canco 1. To the surprise of the estate, the widow beneficiary then received a cheque under a policy under which Canco 1 had been the beneficiary, which she deposited in an account in Canco 1's name.

Since additions to the capital dividend account for life insurance proceeds occur on a received rather than receivable basis, the cheque was an addition to the CDA of Amalco rather than of Canco 1. The Amalco shareholders were willing to have Amalco pay a capital dividend to them equal to the insurance proceeds and to pay those proceeds over to the widow net of Amalco’s transaction costs, provided that CRA first ruled that this worked, which it did. CRA did not comment on whether there was any tax benefit generated from the transaction costs.

Neal Armstrong. Summary of 2015-0624611R3 under s. 89(1) – capital dividend account - (d) ande s. 83(2.1).