A private corporation is the owner and beneficiary of an exempt life insurance policy (with an adjusted cost basis of $90,000) on the life of a shareholder, who dies from, say, suicide or skydiving, which does not void the policy, but instead results in the insurer repaying all premiums ($100,000). Is there a CDA addition of $10,000 under para. (d) respecting the receipt of “proceeds of a life insurance policy... of which the corporation was... a beneficiary" received as a “consequence of the death of any person." Also, pursuant to para. (j) of s. 148(9) - “disposition,” is there no disposition in relation to an interest in a life insurance policy? CRA responded:
A disposition of an interest in a life insurance policy is defined in subsection 148(9) of the Act and specifically excludes a payment made under an exempt life insurance policy as a consequence of the death of a person whose life was insured under the policy. …
Where proceeds of a life insurance policy are received by a corporation as a beneficiary under an exempt life insurance policy in consequence of death of any person, the proceeds would not, in our view, generally be received as the result of a disposition in relation to an interest in a life insurance policy under subsection 148(9) of the Act. Furthermore, pursuant to the definition of CDA in subsection 89(1) of the Act, the amount by which such proceeds exceed the amounts described in subparagraphs (d)(iii) to (d)(vi) of the CDA definition would be included in the corporation’s CDA.