Gestion Roy – Tax Court of Canada finds that a company’s payment of the premiums on whole life policies of which it was the beneficiary but not owner triggered ss. 15(1) and 246(1) benefits

Various whole life policies on the life of a resident individual (Mr. Roy) were owned by (i) a holding company (“Gestion Roy”), controlled by Mr. Roy and which was the majority shareholder of a consulting firm (“R3D”), or by (ii) another holding company (“445 Canada”) which was wholly-owned by Mr. Roy but which was not a shareholder of R3D. However, R3D was the revocable beneficiary of any death benefits under the policies and paid all the premiums.

Smith J confirmed CRA’s inclusions in Gestion Roy’s income under s. 15(1) of the annual premium amounts paid on Gestion Roy’s policies given that it was the owner of such policies (entitling it to the cash surrender value of the policies at any time), so that it was “enriched” when the premiums were paid by R3D – and indicated that it was irrelevant to this point that, in fact, Gestion Roy never received any distribution on its policies. (What in fact occurred a number of years later was that, on the sale of R3D and R3D assets to a third-party purchaser, R3D received the cash surrender value of most of the policies on their termination.) His reasoning suggests that he could have reached the same conclusion even if the designation of R3D as the beneficiary was irrevocable.

He went on to find that it followed that the payment by R3D of the premiums on the policies of 445 Canada resulted in corresponding inclusions under s. 246(1) to 445 Canada.

Neal Armstrong. Summaries of Gestion M.-A. Roy Inc. v. The King, 2022 CCI 144 under s. 15(1) and s. 246(1).