CRA indicates that more gain will be realized if an appreciated life insurance policy is distributed as redemption proceeds rather than a dividend-in-kind

2017-0690331C6 found that a dividend-in-kind by a subsidiary to its parent of a life insurance policy would result in proceeds of disposition to it equal to the greater of the policy’s cash surrender value (CSV) and its adjusted cost basis (ACB), rather than equaling the policy’s higher fair market value (FMV), given that the dividend would not result in consideration being given for the policy. CRA indicated that if the same policy had been transferred in payment of the redemption price for shares, its proceeds would equal the (higher) redemption price.

CRA went on to note that this difference in treatment may reflect an anomalous treatment for a dividend-in-kind, which has been brought to Finance’s attention.

Neal Armstrong. Summary of 5 October 2018 APFF Financial Strategies and Instruments Roundtable, Q.1 under s. 148(7).