Prior to a sale by Holdco of all the shares of Opco to an arm's length purchaser, Opco will transfer its interest in the Policy on the life of Mr. X (the sole shareholder of Holdco) to Holdco by way of a dividend-in-kind. The Policy has a nil ACB, $200,000 FMV, $100,000 CSV and $1,000,000 death benefit. CRA stated:
According to subsection 148(7), a corporation that holds an interest in a life insurance policy is deemed to have become entitled to receive proceeds of the disposition equal to the "value" of the interest where it disposes of such interest by way of a distribution to a person with whom it does not deal at arm's length. Where the interest in a life insurance policy includes an interest in the cash surrender value of the policy, subsection 148(9) provides that its "value" is equal to the [CSV].