Mr. A owns all the shares of a Canadian-controlled private corporation (Holdco) owning a segregated fund insurance policy (the Policy) under which Mr. A is the life insured. In order to benefit from provincial creditor protection rules, Holdco named Mr. A’s spouse as a revocable beneficiary under the Policy. As the policyholder, Holdco receives the annual income and capital gains under the Policy. If the policy is terminated before Mr. A’s death, no benefits will be received by his spouse.
Can the CRA confirm that no immediate shareholder or other benefit arises from naming Mr. A’s spouse (or another related person) as beneficiary under the Policy? CRA responded:
[O]ur long standing position [is] that a shareholder benefit arises under subsection 15(1) … when a corporation pays the life insurance premiums on a policy pursuant to which the shareholder or a person related to that shareholder is the beneficiary of the policy. The amount of the benefit to be included in computing the shareholder’s income in a given taxation year is usually equal to the amount of the insurance premiums paid by the corporation for that year. …
Accordingly, given that a segregated fund policy is, by definition, a life insurance policy, we cannot confirm that no benefit arises in the described situation … . The question of whether a benefit under subsection 15(1) … has been conferred is generally one of fact to be determined on a case-by-case basis.