A shareholder wants the proceeds of an insurance policy on his life, held by a corporation of which he is the sole shareholder (holding all the common shares), to be paid to his former spouse.
To this end, the shareholder acquires for $1 a special share that is redeemable for $1 at the discretion of the corporation and that entitles the holder to receive a dividend equaling the death benefit under the policy on the shareholder’s death.
The corporation then purchases the policy, pays the premiums and is the beneficiary. At the shareholder’s death, he holds all of the common shares and the special share.
In 2005-0138361C6 CRA indicated that it appeared that the overall value of the corporation that would be attributed to the special share immediately before the death would be nominal. Accordingly, the value of the common shares immediately before the death would take into account almost the entire CSV of the life insurance policy.
CRA now confirmed that such comments “continue to apply to that identical fact situation.”