CRA confirms that a refund of premiums on death under a life insurance policy does not entail its disposition but can increase the CDA of the corporate owner

A private corporation is the owner and beneficiary of an exempt life insurance policy (with an adjusted cost basis of $90,000) on the life of a shareholder, who dies from, say, suicide or skydiving, which does not void the policy, but instead results in the insurer repaying all premiums ($100,000).

CRA confirmed that there is a CDA addition of $10,000 under para. (d) of the CDA definition respecting the receipt of “proceeds of a life insurance policy... of which the corporation was... a beneficiary" received as a “consequence of the death of any person;" while at the same time, pursuant to para. (j) of s. 148(9) - “disposition,” there is no disposition in relation to an interest in a life insurance policy.

Neal Armstrong. Summary of 8 July 2020 CALU Roundtable Q. 2, 2020-0842141C6 under s. 89(1) – capital dividend account – (d).