CRA indicates that the holding on death of an insurance tracking share would not prevent the underlying policy’s CSV being attributed for ss. 70(5) and (5.3) purposes to the common shares
In a variation on the situation described in the preceding post, the shareholder of a wholly-owned corporation acquires for $1 a special share that is redeemable for $1 at the discretion of the corporation and that entitles the holder to receive a dividend equaling the death benefit under a policy on the shareholder’s death. The corporation then purchases the policy, pays the premiums and is the beneficiary. At the shareholder’s death, he holds all of the common shares and the special share.
CRA indicated that it appeared that the overall value of the corporation that would be attributed to the special share immediately before the death would be nominal. Accordingly, the value of the common shares immediately before the death would take into account almost the entire cash surrender value of the life insurance policy.
Neal Armstrong. Summary of 19 May 2021 CLHIA Roundtable Q. 5, 2021-0884301C6 under s. 70(5.3).