28 March 1985 Income Tax Severed Letter 7-3827 - [Life Insurance Capital Dividend Account]

TO/À HAMILTON DISTRICT OFFICE

FROM/DE HEAD OFFICE
        Corporate Rulings Directorate
        Financial Institutions Section
        J.W. Shaw
        Tel. 993-6937

ATTENTION Mr. C. Tremblay
          Audit Review

RE: Life Insurance Capital Dividend Account

28-3-85

This is in reply to your memorandum of January 30, 1985, in which you requested our views as to whether proceeds under a disability insurance plan received by a corporation may be payable through the above account or the capital dividend account to enable the insured shareholder's shares to be purchased by the other shareholder(s).

In our opinion, since the proceeds under the disability policy will not be received by the corporation "as a consequence of the death of a person whose life was insured under the policy by the corporation", as required in clause 89(1)(b.2)(i)(A) of the Income Tax Act, the proceeds would not form part of the life insurance capital dividend account.

From subparagraphs 148(9)(c)(vii) and 39(1)(a)(iii) we conclude the events contemplated do not give use to a capital gain, and, therefore, the proceeds received by the corporation would not be includable in its "capital dividend account" as defined in paragraph 89(1)(b) of the Income Tax Act.

Chief Financial Institutions Section Bilingual Services & Finance Division Corporate Rulings Directorate Legislation Branch