Emjo Holdings – Tax Court of Canada finds that “key man” insurance premiums on a universal life policy were non-deductible
A corporate borrower was required by its lender to take out key man insurance and assign the policy to the lender (a credit union). None of the premiums were deductible under s. 20(1)(e.2) for various reasons including that no evidence had been adduced to distinguish between the cost of the “universal life” policy in question and “the net cost of pure insurance”, the cost of which would be deductible under s. 20(1)(e.2)(ii). Smith J also indicated that s. 20(1)(e.2) required the deduction to “be correlated to the amount of the loan ‘owing from time to time’,” whereas here the amount owing had been reduced to approximately 10% of its original amount at the commencement of the first taxation year in question (so that any deduction would need to be prorated accordingly) and was repaid in full shortly thereafter (reducing any deduction to nil).
Neal Armstrong. Summary of Emjo Holdings Ltd. v. The Queen, 2018 TCC 97 under s. 20(1)(e).