Where two siblings are the shareholders of two transferee corporations which are to receive two life insurance policies taken out by the distributing corporation on the life of each sibling to fund the redemption of the other's shares on the other's death, the cash surrender value of each property would be treated as a cash or near cash asset. The excess of the fair market value over the cash surrender value potentially may be treated as an investment asset (see 2010-0358061R3, where the distributing corporation did not own any business property), although CRA may be prepared to be flexible respecting the classification of such excess and potentially could treat the excess as business property. CRA would accept that each type of property transferred may be determined on a net basis (thereby applying liabilities of the DC), although such liabilities would have to be allocated following a predetermined pattern.
CRA also stated:
[I]f the circumstances of a case show an intention to cash out the life insurance policy or if the death of the insured person is imminent, the FMV of a life insurance policy, including its CSV, as the case may be, may need to be classified as "cash or cash equivalents".