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.
Principal Issues: Where a corporation issues a special share to its sole shareholder's adult child for the purpose of streaming life insurance proceeds, will subsection 15(1) apply on the acquisition of the share by the shareholder's child.
Position: In the situation described, provided that the issue price reflects the fair market value of the special share at the time of issuance, it is our view that subsection 15(1) will not apply to include a benefit in the child's income as a consequence of the child acquiring the special share.
CALU - Conference for Advanced Life Underwriting (2005)
Question 2
Use of Special Shares to Distribute Insurance Proceeds
A corporation creates a special class of non-voting shares that entitle the holder to dividends as declared by the directors. The directors may only declare dividends on the shares out of the proceeds received by the corporation as the beneficiary of a life insurance policy on the death of its sole shareholder and only to the extent that the proceeds are added to the corporation's capital dividend account. The corporation is the owner of the policy and pays the premiums under the policy. The special shares are redeemable at the option of the corporation for $1 per share.
The corporation issues one special share to the shareholder's adult child for $1.
Question:
Does the Agency agree that subsection 15(1) is not applicable with respect to the acquisition of the special share by the shareholder's child?
Agency's Response
Provided that the issue price of $1 reflects the fair market value of the special share at the time of issuance, it is our view that subsection 15(1) will not apply to include a benefit in the child's income as a consequence of the child acquiring the special share.
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