A corporation held a life insurance policy on an individual who was a senior executive and shareholder. The death benefit of $1,000,000 was payable to the policyholder (the corporation). The policy had a cash surrender value of $125,000, an adjusted cost basis of $50,000 and a fair market value of $125,000.
CCRA indicated the following consequences of the transfer of the policy by the corporation to the individual for no consideration:
- Pursuant to s. 148(1), the corporation was required to include $75,000 in income, being the excess of the deemed proceeds of disposition under s. 148(7) over the policy ACB ($125,000 - $50,000).
- The individual was required to include the policy FMV of $125,000 in income pursuant to s. 6(1)(a) or 15(1).
- If the policy was transferred to the individual qua employee rather than shareholder, the $125,000 value could be deducted by the corporation in computing its income.
- Pursuant to s. 148(7), the individual was deemed to have acquired the policy at a cost equal to its FMV of $125,000.
- To the extent only that the FMV of the policy exceeded its CSV, and there was an income inclusion to the individual under s. 6(1)(a) or 15(1), CCRA would allow the excess of the FMV of the policy over its CSV to be added in computing the ACB to such transferee.