Principal Issues: Mr. A is the sole shareholder of OPCO, a CCPC. OPCO earns active business income. Mr. A is the policyholder of a life insurance policy on his life. OPCO is the beneficiary of the life insurance policy. OPCO pays the premiums relating to the life insurance policy. A policy loan is granted by the insurer to Mr. A. A) Whether the payment by OPCO of the premiums of the life insurance policy constitutes a shareholder benefit to Mr. A pursuant to subsection 15(1). B) Whether the policy loan granted by the insurer to Mr. A constitutes a shareholder benefit to Mr. A pursuant to subsection 15(1).
Position: A) Yes. B) No.
Reasons: A) Question of fact and in accordance with previous positions. B) Question of fact.
XXXXXXXXXX 2011-041679 J. Lafrenière
(613) 941-2956
November 24, 2011
Subject: Technical interpretation request - subsection 15(1)
Dear Sir,
This is in response to your letter of August 10, 2011, in which you asked us for clarification regarding the application of subsection 15(1) of the Income Tax Act (the "Act") in the context of a Particular Situation.
Unless otherwise stated, all statutory references are to a provision of the Act.
It appears to us that the situation described in your letter and summarized below could constitute an actual situation involving taxpayers. As explained in Information Circular 70-6R5, it is not the practice of this Directorate to provide comments on proposed transactions involving specific taxpayers otherwise than in the form of an advance income tax ruling. If your situation involves specific taxpayers and one or more transactions, you should submit all relevant facts and documents to the appropriate Tax Services Office for their opinion. However, we are able to offer the following general comments that may be helpful to you. It should be noted that the application of one or more provisions of the Act generally requires the analysis of all facts relating to a particular situation. Accordingly, and in light of the fact that your letter only very briefly describes a hypothetical given situation, the comments provided below may not be fully applicable in a particular situation.
The Particular Situation
You have presented the situation described below (the "Particular Situation") as part of your request for a technical interpretation:
a) A corporation ("Opco") is a Canadian-controlled private corporation as defined in subsection 125(7).
b) Income generated by Opco is income from an active business carried on in Canada.
c) An individual ("Mr. A") is the sole shareholder of Opco.
d) Mr. A is the holder of a universal life insurance policy (the "Policy") of which the insured person is Mr. A.
e) Opco is the beneficiary of the Policy.
f) Opco pays the premiums on the Policy but does not deduct them in computing its income for purposes of the Act.
g) A policy loan is made by the insurer to Mr. A.
Your questions respecting the Particular Situation
You asked us whether subsection 15(1) applies in respect of the Particular Situation. Specifically, you asked us whether the fact that Opco pays the premiums for the Policy is a benefit conferred on Mr. A by virtue of subsection 15(1), considering that Opco and Mr. A are, respectively, the beneficiary and policyholder.
You also asked us whether the policy loan granted by the insurer to Mr. A, the policyholder, is a shareholder benefit, depending on the potential application of subsection 15(1) with respect to the payment of the premiums of the Policy by Opco.
Our Comments respecting the Particular Situation
Shareholder benefit
The question of whether a particular corporation has conferred a benefit on a shareholder under subsection 15(1) is generally one of fact.
In this case, we are of the view that the payment by Opco, the premiums on the Policy for which Mr. A is the holder, is a benefit conferred by Opco on Mr. A under subsection 15(1).
Policy loan
A "policy loan", as that term is defined in subsection 148(9), means an amount advanced by an insurer to a policyholder in accordance with the terms of the life insurance policy.
We are of the view that, in a situation similar to the Particular Situation, a policy loan made by an insurer to the holder of a life insurance policy would not generally be considered to constitute a benefit to a shareholder under subsection 15(1).
We note in closing, given that your letter only briefly describes a hypothetical situation, that we make no comment with respect to other tax consequences that may arise from the transactions described in the Particular Situation.
Please note that this opinion is not an advance ruling and does not bind the Canada Revenue Agency with respect to a particular factual situation.
We hope that these comments are of assistance.
Best regards,
Maurice Bisson, CGA
Manger
Corporate Reorganizations and Resource Industry Section
Corporate Reorganizations and Resource Industry Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch