CRA confirms that there is a double deduction of the ACB of a joint life insurance policy in computing the CDA addition to the two corporate beneficiaries of the proceeds
As amended, para. (d) of the capital dividend account definition now provides that the addition to the CDA for life insurance proceeds is reduced by the adjusted cost basis (ACB) of the policy to any policyholder (rather than only any ACB of the policy to the corporate recipient of the insurance proceeds). In 2017-0690311C6, CRA indicated that where there are two corporate beneficiaries (B and C) of a policy owned by a third corporation (A), the addition to the CDA of B and C on their receipt of the proceeds will be reduced by the full (rather than equitably pro-rated) ACB of the policy to the policyholder (A).
CRA has now indicated that essentially the same anomaly arises in the situation where A (a.k.a., Opco) and B (a.k.a., Holdco A) are the joint owners of a life insurance policy under which A is the beneficiary of $1 million of the death benefit and B as to any excess, and with A paying the premium relating to the $1 million of death benefit coverage, and B making additional deposits on an annual basis.
On the death of the named individual (B’s sole shareholder), the total death benefit is $1.2 million and the policy’s ACB is $150,000. CRA indicated that A’s and B’s CDA additions were $850,000 ($1,000,000 - $150,000) and $50,000 ($200,000 - $150,000), respectively, i.e., the $150,000 ACB was required to be deducted twice.
Neal Armstrong. Summary of under 8 May 2018 CALU Roundtable Q. 2, 2018-0745811C6 under s. 89(1) – capital dividend account – s. (d)(iii).