Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
E. Wayne Hood (613)993-7295
June 25, 1985
Dear XXXX
We are replying to your letter of February 18 concerning subsection 70(5.3) of the Income Tax Act. We apologize for the delay in responding.
As you advise, for the purposes stated in subsection 70(5.3), the value of a life insurance policy shall be the cash surrender value of the policy within the meaning assigned by paragraph 148(9)(b). You advise that representatives of your XXXX discussed the valuation treatment of policy loans and dividends left on deposit with the Department of Finance officials. It was agreed that these items should be reflected in the valuation of the corporate shares. However, Department of Finance officials have further advised you that it is not necessary, in their view, that subsection 70(5.3) be revised. Rather, their review of the matter indicates that a valuator would record cash value, dividends left on deposit, and prepaid premiums as three separate assets, and policy loans as a liability. Subsection 70(5.3) would only apply to the asset account for cash values, and the other accounts would be valued separately. Your XXXX agrees that this process would lead to proper valuations. You have requested our confirmation that the valuation of corporate-owned life insurance for the purpose of the deemed disposition of the shares immediately before death will be administered in this manner. Specifically, if earnings are capitalized, and cash surrender values are segregated as "redundant assets", you ask whether dividends left on deposit, prepaid premiums and policy loans would be similarly segregated.
It is our view that subsection 70(5.3) does not preclude consideration of the impact of other assets and liabilities, such as are described in the foregoing, on the valuation of the shares referred to in the subsection.
We hope our comments will be useful.
Yours truly,
for Director Non-Corporate Rulings Division
c.c. H.A. Diguer, ADM Policy & Systems Branch 70(5.3) 148(9)(b)
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