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.
THE CONFERENCE FOR ADVANCED LIFE UNDERWRITING
1993 Annual Conference
Question 13
As part of a buy-sell agreement among shareholders a corporation is the owner and beneficiary of life insurance policies on the lives of shareholders. The Department has stated in the past that, on the sale of shares by an estate to a purchaser with whom it does not deal at arm's length, an adjustment might occur under section 69 of the Act to take into account the life insurance proceeds payable to the corporation on the deceased's death. In that context, please consider the following:
(a) Where the corporation is required under a shareholders agreement to pay the life insurance proceeds as a capital dividend, either to the estate of the deceased or to the surviving shareholders, would the Department agree that, in valuing the shares sold by the estate, the fair market value of the life insurance proceeds is offset by a liability, i.e. the requirement to distribute the proceeds under the terms of the agreement?
(b) If the criteria in paragraph 110.6(15)(b) are met, thereby limiting the deemed fair market value of the insurance proceeds to the cash surrender value immediately before death, will the Department nevertheless include all insurance proceeds in determining the fair market value of shares sold by the estate, for the purposes of any adjustment under section 69 of the Act?
Response
(a) The Department has not considered specifically whether such a dividend would reduce the fair market value of the shares, however, if the disposition of shares by the estate is governed by a bona fide buy-sell agreement among shareholders, its provisions should be determinative of value as stated in paragraphs 28 to 31 of Information Circular 89-3. If the agreement is not bona fide then valuation would be a question of fact.
(b) Paragraph 110.6(15)(b) limits the fair market value of the insurance proceeds for the purposes of the definitions listed in the preamble to subsection 110.6(15). It does not apply to the determination of fair market value for the purposes of section 69.
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© Her Majesty the Queen in Right of Canada, 1993
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© Sa Majesté la Reine du Chef du Canada, 1993
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