An estate sold a private company (Canco 1) to a third party purchaser, which promptly amalgamated with Canco 1. To the surprise of the estate, the estate beneficiary (the deceased's widow) then received a cheque under a policy under which Canco 1 had been the beneficiary, which she deposited in an account in Canco 1's name.
Since additions to the capital dividend account for life insurance proceeds occur on a received rather than receivable basis, the cheque was an addition to the CDA of Amalco rather than of Canco 1. The Amalco shareholders were willing to have Amalco pay a capital dividend to them equal to the insurance proceeds and to pay those proceeds over to the widow net of Amalco’s transaction costs, provided that CRA first ruled that the Policy proceeds increased Amalco's CDA, and that s. 83(2.1) would not apply to the dividend (given the purchaser not being aware of the Policy).