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.
Dear Sir:
This is in reply to your letter of May 4, 1984 concerning a collateral assignment of a life insurance policy.
You described a hypothetical situation where a corporation which is the owner and beneficiary of a life insurance policy makes a collateral assignment of the policy to its bank as security for a loan. Upon the death of the insured the proceeds under the policy are paid directly to the bank pursuant to the terms of the collateral assignment.
It is your view that for purposes of paragraph 89(1)(b) and 89(1)(b.2) of the Income Tax Act, the amount paid to the bank as described above would be considered an amount received by the corporation; and the corporation would be considered a beneficiary of the policy.
It is our understanding that under common law a collateral assignment does not extinguish the beneficiary's interest entirely, in that the rights and interests of the beneficiary are affected only to the extent necessary to satisfy the collateral assignee's interest.
It is also our view that the amount paid to the bank under the collateral assignment would be considered received by the corporation provided the agreement or arrangement between the parties clearly establishes that such payment reduces or extistinguishes the amount of the corporation's indebtedness to the bank.
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© Her Majesty the Queen in Right of Canada, 1984
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© Sa Majesté la Reine du Chef du Canada, 1984
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