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, with the cash surrender value (CSV) of each policy being treated as a cash or near cash asset, but with the CSVs of the two policies differing. Could a proportional division of the distributing corporation's cash or near cash assets be accomplished by borrowing on a policy so that its net worth equaled that of the other? CRA responded:
In general ... a loan made by a corporation technically results in an acquisition of cash by the corporation. Thus, in the particular situation described above, the CRA may consider that the acquisition of cash by the distributing corporation as a result of the loan would come within paragraph 55(3.1)(a) and would have the effect of subjecting intercorporate dividends to the application of subsection 55(2).