Principal Issues: Does subsection 69(5) take precedence over subsection 148(7) in respect of the distribution of an interest in a life insurance policy by a corporation to a shareholder on a subsection 88(2) wind-up of the corporation?
Position: Likely
Reasons: Subsection 69(5) seems more specific, but an actual fact situation is required for a full analysis.
CLHIA Roundtable -- May 14, 2015
Question 4
Subsection 88(2) Wind-up and Adjusted Cost Basis
At the 2005 CALU Roundtable (Technical Interpretation 2005-0116631C6), the CRA indicated that subsection 69(5) would likely take precedence over subsection 148(7) such that on the wind-up of a corporation to which subsection 88(2) applies, a distributed interest in a life insurance policy would be disposed of at fair market value rather than cash surrender value. Would the CRA confirm that this position still stands?
CRA Response:
The CRA's position as stated in our response to Question 3(c) at the 2005 CALU Roundtable remains unchanged. That is, the general rule is that where two provisions in the same statute conflict, the more specific provision should take precedence. In the case of the winding-up of a corporation to which subsection 88(2) applies, there is no clear indication as to which of subsection 69(5) and subsection 148(7) is applicable to the distribution of an interest in a life insurance policy. While we would generally expect subsection 69(5) to take precedence over subsection 148(7) in such circumstances, this approach is subject to a review of the particular facts and circumstances of an actual case to ensure that it provides for a reasonable result.
Alex Johnstone
2015-057384