Principal Issues: 1. Whether subsection 15(1) would apply in the situation described? 2. Whether the proceeds of a group life insurance policy would be included in the CDA of a corporation if the corporation is the beneficiary? 3. Whether the proceeds of a group life insurance policy would be included in the CDA of a corporation if an individual transfers its group life insurance certificate to its corporation?
Position: 1. No position taken. 2. Yes if certain conditions are satisfied. 3. No position taken.
Reasons: 1. Not enough facts. 2. 89(1) def CDA 3. Transaction may not be possible under the relevant provincial laws.
Financial Strategies and Financial Instruments Roundtable, 7 October 2011
2011 APFF Conference
Question 11 - Group Life Insurance and Capital Dividend Account
Many individuals now practise their profession through an incorporated professional corporation. Many of them hold a group term life insurance certificate as an insured, for which the policyholder is a professional association of which the insured is a member. Some wish to transfer the insurance certificate to their corporation so that it pays the premiums and receives the insurance proceeds on the death of the insured.
Questions to the CRA
1. Would the life insurance proceeds paid to the corporation as a result of the death of the insured be added in the calculation of the capital dividend account ("CDA") under subparagraph (d)(ii) the definition of CDA in subsection 89(1)?
2. Would the answer be the same if, by law, the insurance certificate were to continue to be issued in the name of the insured individual and the corporation was designated as the beneficiary of the proceeds of the insurance and paid the insurance premiums?
3. If the certificate continued to be issued in the name of the individual member of the professional association but the corporation paid the premiums and was designated as the beneficiary of the insurance proceeds, would the CRA then consider that a benefit should be included in computing the income of the insured /shareholder under subsection 15(1)? If so, what would be the amount of the benefit?
CRA Response
The determination of the tax consequences of the transactions described above, which appear to be proposed transactions, can only be made after a review of all relevant facts (including the provisions of the contracts) in each situation. It should be noted that the relevant facts could obviously be different depending on the situations.
In addition, the CRA's practice is not to express an opinion on proposed transactions other than through advance rulings. However, we can offer you the following general comments that may, however, under certain circumstances, not apply to a particular situation.
Under the question, it appears that some individuals who are members of a profession and are members under a group life insurance contract would like to transfer to a corporation their rights (as an insured) in the contract. Before the CRA makes any comments in that regard, it should first be demonstrated to the CRA that that is possible in practice under the provisions of the relevant legislation (possibly, the Civil Code of Quebec, the Quebec Insurance Act and the Quebec Regulation under the Act respecting insurance) and the relevant master agreement.
Where a corporation is the beneficiary of a group term life insurance policy (of which the corporation was not a beneficiary on or before June 28, 1982) and receives proceeds of the insurance policy as a result of the death of a member who has designated the corporation as a beneficiary by virtue of the master agreement for the policy, the proceeds may ordinarily be added in the calculation of the corporation's CDA pursuant to subparagraph (d)(ii) of the CDA definition in subsection 89(1).
The application of subsection 15(1) is a question of fact and each situation must be examined individually. It is possible that the transactions described in the question may be carried out for reasons other than business reasons or, in other words, for personal reasons (including reducing the tax burden on individuals). It is possible that subsection 15(1) is applicable, depending on the facts.
Robert Gagnon
(613) 957-9768
2011-040729