2017-0690331C6 found that a dividend-in-kind by a subsidiary to its parent of a life insurance policy would result in proceeds of disposition to it equal to the greater of the policy’s cash surrender value (CSV) and its adjusted cost basis (ACB), rather than equaling the policy’s higher fair market value (FMV), given that the dividend would not result in consideration being given for the policy. If the subsidiary instead transfers a policy with a CSV and ACB of $50,000 and $25,000, respectively, on the redemption of preferred shares having an FMV equal to the policy’s FMV of $100,000, would its proceeds of disposition be $100,000 notwithstanding that the proceeds would only have been $50,000 if there instead had been a dividend-in-kind?
In effectively answering “$100,000,” CRA stated:
[T]he word "consideration" must, for the purposes of subsection 148(7), receive the broad meaning generally accorded to it in the jurisprudence … [so that where] on a share redemption, the redemption price paid by a corporation is an interest in a life insurance policy that the corporation transfers to the shareholder, the CRA is of the view that the shareholder gave consideration (the redeemed shares) to the corporation for the interest thus transferred.
CRA went on to note that the different treatment for a redemption may reflect an anomalous treatment for a dividend-in-kind, which has been brought to Finance’s attention.