| 921605 | |
| 24(1) | T. Murphy |
| (613) 957-3496 |
Attention: 19(1)
July 24, 1992
Dear Sirs:
Re: Living Benefits and Capital Dividend Account
This is in reply to your letter of May 21, 1992 in which you enquired whether a "living benefit" paid under a life insurance policy may be added to the capital dividend account ("CDA") of a private corporation under subparagraph 89(1)(b)(iv) of the Income Tax Act (the "Act"). We understand that a living benefit is an advance payment of part of the sum assured under the policy where the life expectancy of the insured is less than two years due to a medically incurable condition. The advance payment, plus interest, will be deducted from the amount payable on death.
Subparagraph 89(1)(b)(iv) of the Act provides for an addition to the CDA of the amount, if any, by which amounts received by the corporation as proceeds of a life insurance policy in consequence of the death of any person exceed the adjusted cost basis (defined in paragraph 148(9)(a) of the Act) of the policy. In our view, the phrase "in consequence of the death of any person" refers to amounts received after the death of the insured and not to amounts received in contemplation of the death of the insured.
Accordingly, it is our opinion that a living benefit would not be an amount received in consequence of death for purposes of subparagraph 89(1)(b)(iv) of the Act.
We hope our comments are of assistance to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate