A corporation is the owner and beneficiary of an insurance policy on the life of a senior executive officer, who is also a shareholder, which was acquired to provide key person coverage to indemnify the corporation for a potential loss of profits on the insured’s death. The corporation no longer needs the policy on the executive’s retirement, and it transfers the policy to him for no consideration at a time when the particulars are:
- Death benefit $1,000,000
- Cash surrender value $ 125,000
- Adjusted cost basis $ 50,000
- Fair market value $ 125,000
Without being queried on this issue, CRA stated:
Although there are certain exceptions in the "advantage" definition, a benefit arising from the RCA holding a life insurance policy is not among them.
It is not clear under what circumstances an RCA would be holding a life insurance policy that provides for more than a nominal death benefit. The holding of such a life insurance policy would appear to have little to do with providing for benefits under the RCA in relation to retirement, a loss of an office or employment, or a substantial change in services rendered. The holding of such a life insurance policy by the RCA could give rise to an advantage and, therefore, advantage tax under section 207.62… .