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.
RULINGS DIRECTORATE
CORRESPONDENCE SUMMARY
Principal Issues:
Whether the proceeds from a creditor life insurance policy used to pay down a private debtor corporation's line of credit is added to the capital dividend account of that corporation.
Position TAKEN:
Not if the creditor is the beneficiary under the policy.
Reasons FOR POSITION TAKEN:
Where the financial institution is the beneficiary of a creditor life insurance policy the proceeds would be received by the creditor on the death of the life insured . To increase the capital dividend account paragraph 89(1)(d) requires that the proceeds of the life insurance policy be received by the debtor corporation. (See Document E9407245)
951371
XXXXXXXXXX G. Donell
Attention: XXXXXXXXXX
May 26, 1995
Dear Sirs:
Re: Creditor Life Insurance - Capital Dividend Account
This is in reply to your letter of May 12, 1995 and further to your telephone conversation with Mr.Gary Donell May 24, 1995 in which you have asked us whether the proceeds of a creditor life insurance policy will increase the "capital dividend account" (CDA), as that term is defined in subsection 89(1) of the Income Tax Act (the "Act") of a debtor private corporation.
Paragraph 89(1)(d) of the definition of the CDA provides for an increase where the proceeds of a life insurance policy are received by a private corporation as a consequence of the death of any person. In circumstances where, under the terms and conditions of a creditor life insurance policy, a creditor as beneficiary receives the proceeds of such a policy the debtor corporation could not increase it's CDA with respect to that life insurance policy. Even though the debtors' indebtedness would be extinguished in this situation it is not a beneficiary under the policy and therefore is neither entitled to receive nor does it receive proceeds of a life insurance policy.
We trust that the above comments are of assistance to you.
Yours truly,
Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy & Legislation Branch
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