14 May 2019 CLHIA Roundtable Q. 2, 2019-0799051C6 - 2019 CLHIA Roundtable - 148(7) questions -- summary under Paragraph 6(1)(a)

As a result of an arm's length employee B no longer being considered to be a key employee, her employer (Corporation A) transfers its “key person” permanent life insurance policy on her life to her for nominal consideration. At the transfer time, the death benefit, cash surrender value and ACB are $1 million, $50,000 and $20,000, respectively. The policy FMV equals its CSV.

Does the transfer engage s. 6 or 148(7) or in Corporation A having to report a gain on disposition of the policy? Before going on to address the application of s. 148(7) to the transaction, CRA responded:

Employee B will have an employment benefit under paragraph 6(1)(a) for the year in which the policy is received. The amount of the paragraph 6(1)(a) benefit will be the amount that is the FMV of the interest in the policy at the time of the transfer less any amount paid by Employee B for the interest (in the described situation, no amount was paid by Employee B).