In a May 18, 2017 Technical Interpretation (2017-0690311C6, Danis, Sylvie), CRA considered the addition to the capital dividend account(CDA) where two corporations were the beneficiaries of a corporately-owned life insurance policy.

2017-10 CORPORATE OWNED LIFE INSURANCE – MULTIPLE BENEFICIARIES

In a May 18, 2017 Technical Interpretation (2017-0690311C6, Danis, Sylvie), CRA considered the addition to the capital dividend account(CDA) where two corporations were the beneficiaries of a corporately-owned life insurance policy. Generally, the addition to the CDA is equal to the amount by which the proceeds of a life insurance policy exceed the adjusted cost basis (ACB) immediately before the death of a policyholder’s interest (Paragraph (d) of the definition of capital dividend account in Subsection 89(1)). Where there are multiple corporate beneficiaries designated under a policy, it is CRA’s view that eachbeneficiary must apply the above calculation to its CDA independently. In other words, the portion of the death benefit received by each beneficiary must be reduced by the full ACB. The legislation does not provide for a proration of the ACB in cases of multiple beneficiaries. For example, where the death benefit of a corporately-owned life insurance policy is $1 million, and the cost base is $200K, the addition to the CDA for each of the two corporate beneficiaries would be $300K ($500K proceeds per corporation less total ACB of $200K).

COMMISSION EARNED BY CORPORATION

In a July 11, 2017 Technical Interpretation (2017-0693761E5, Robinson, Katie), CRA opined that whether a corporation is carrying on a business and earning commission income is a question of fact and requires more than a mere assignment of income. The question was asked as Income Tax Technical News 22 noted that “if insurance agents, realtors, mutual fund salespersons, or other professionals are legally… precluded from assigning their commissions to a corporation, then the commission income must be reported by the individuals, and cannot be reported through a corporation, regardless of the documentation provided”.