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 Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
corporation receives proceeds from a life insuarance policy but did not pay any of the premiums, what amount is added to the CDA
Position TAKEN:
the full amount of the proceeds received
Reasons FOR POSITION TAKEN:
the adjusted cost basis to the corporation is nil if it did not pay the premiums
941567
XXXXXXXXXX A. Seidel
Attention: XXXXXXXXXX
July 26, 1994
Dear Sirs:
This is in reply to your letter dated June 15, 1994 in which you requested our opinion regarding the income tax implications of the receipt of life insurance proceeds by a corporation.
Unless otherwise indicated, all references to statute are to the Income Tax Act S.C. 1970-71-72, c.63, as amended, consolidated to June 10, 1993 (the "Act").
In general, where a corporation is a beneficiary of a life insurance policy the proceeds of the life insurance policy received by the corporation less the adjusted cost basis ("ACB") of the policy are added to its capital dividend account ("CDA"). The expressions "adjusted cost basis" and "capital dividend account" have the meanings assigned by paragraphs 148(9)(a) and 89(1)(b) of the Act, respectively.
In the situation where a corporation is the beneficiary of a life insurance policy but is not the policyholder and has, therefore, not paid the premiums in respect of the policy, it is our view that the proceeds will be added to the CDA of the corporation pursuant to subparagraph 89(1)(b)(iv) of the Act and that the ACB of the policy to the corporation will be nil.
The comments set out in this letter are of a purely general nature and do not take into account any considerations which might arise in the context of a specific transaction. These comments are provided in accordance with the guidelines set out in paragraph 21 of Information Circular 70-6R2 and are not binding on the Department.
Yours truly,
for Director
Reorganizations and Foreign Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
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