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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: Whether subsection 148(7) of the Act would apply to a situation where a corporation transfers a life insurance policy, on the life of an arm's length shareholder or arm's length employee to the life insured, for proceeds equal to the fair market value of the life insurance policy at the time of transfer.
Position: No
Reasons: Subsection 148(7) applies to non-arm's length transfers of life insurance policies and also to arm's length transfers made by way of gift, by operation of law only or by distribution from a corporation. Where the shareholder or employee, as the case may be, and the corporation are dealing at arm's length and the shareholder or employee pays FMV consideration to the corporation to acquire the policy, it is our view that such a transfer would not be considered to have been made by way of gift, by operation of law only or by distribution from the corporation.
CALU - Conference for Advanced Life Underwriting (2003)
Question 5
Sale of a life insurance policy
If a corporation transfers a life insurance policy it holds on the life of an arm's length shareholder to that shareholder, in exchange for fair market value proceeds which exceed the CSV of the policy, would subsection 148(7) of the Act apply to deem the transfer to have taken place at CSV? Would your response be the same if the fair market value disposition was made to an arm's length employee, in respect of a life insurance policy held by the corporation on the life of that employee?
Agency's Response
The sale of a life insurance policy to an arm's length shareholder or to an arm's length employee, for proceeds equal to the fair market value of the policy would not be viewed as a "distribution" from the corporation for the purposes of subsection 148(7) of the Act. However, it should be noted that whether or not a shareholder or an employee is dealing at arm's length with a corporation, such that it becomes relevant whether the transfer of the policy would be a "distribution" from the corporation, is a question of fact.
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