12 November 1991 External T.I. 9121465 F - Capital Dividend Account

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.

5-912146

Dear Sirs:

Re: Capital Dividend Account-Paragraph 89(1)(b)

This is in reply to your letter of July 31, 1991 in which you requested our opinion regarding the income tax implications of the receipt of life insurance proceeds by a corporation.

Our views are based on the following assumptions:

1.        A shareholder of the corporation is the owner of a life insurance policy under which she is the life insured.

2.        The shareholder pays all premiums in respect of the policy but the corporation is designated as the beneficiary of the policy.

Our Comments

In our opinion the corporation would add the amount of any proceeds of the policy received as a consequence of the death of the shareholder less the corporation's adjusted cost basis of the policy to its capital dividend account pursuant to subparagraph 89(1)(b)(iv) of the Income Tax Act (the "Act").  The corporation's adjusted cost basis of the policy would be determined under paragraph 148(9)(a) of the Act which, in our view, only creates a cost basis for policyholders.   Although the facts provided do not provide any detail of the corporation's interest in the policy, it seems unlikely that its interest is sufficient to constitute it a policyholder.  In our view a policyholder is a legal owner of a policy.

The foregoing comments are given in accordance with the practice referred to in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990 and are not binding on Revenue Canada, Taxation.

Yours truly,

for DirectorReorganizations and Foreign DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch