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.
XXXXXXXXXX
Attention: XXXXXXXXXX
Dear Sirs:
RE: Capital Dividend Account and Life Insurance Proceeds received in Trust
This is in reply to your letter of August 18, 1993 regarding the definition of Capital Dividend Account ("C.D.A.") in subparagraph 89(1)(b)(iv) of the Income Tax Act ("Act"). In particular, you were concerned with the interpretation of the phrase, "received by the corporation", in clauses A and B thereof, and how the Department would interpret this in situations where insurance proceeds were received by a third party under a contractual arrangement instead of directly by the corporation.
As your situation refers to a specific completed transaction it could be referred to the local District Taxation Office should you wish consideration of that particular arrangement. However, we can make the following general comments.
To be included in the determination of the C.D.A. of a corporation the proceeds must be considered to be received by the corporation. If the amounts are received by a trust, other than a bare trust, and then distributed to the corporation, they are not considered to be insurance proceeds, rather they are a distribution from a trust. There are no provisions that would deem these insurance proceeds to retain their identity as such when they are paid out of the trust.
A corporation can be considered to have received the proceeds of a life insurance policy which it owned and on which it paid the premiums where it directed the payments to a third party provided the corporation was the beneficiary under the policy. Also, if amounts are received by an agent of the corporation or trustee of a bare trust, of which the corporation is the settlor and beneficiary, the amounts would be considered to be received by the corporation. It would be a question of fact whether your arrangement constitutes an agency agreement, bare trust or any form of trust. Such a determination can be made only after a thorough review of all of the relevant agreements.
We trust this is of assistance.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate
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