taxable benefits can be assessed to corporations

A November 28, 2022 French Tax Court of Canada case (Gestion M.-A. Roy Inc. et al. vs. HMK, 2019-2534(IT)G) reviewed CRA’s assessment of taxable benefits on two holding corporations (Holdcos) in respect of life insurance premiums paid by an operating corporation (Opco). Opco was the revocable beneficiary of the policies, which were owned by the Holdcos. The annual benefits of $88,782 for one Holdco and $279,763 for the other were assessed for four taxation years.

While the Holdcos owned the policies, cash withdrawals during the period from the investment account were received by Opco, which also reported the taxable income from these withdrawals. When Opco’s business was sold, the payouts on cancellation of the policies were also received and reported by Opco. The taxpayer testified that as Opco paid the premiums, it was treated as the owner of the investment component.

benefits conferred on non-shareholders can also be taxable

Taxpayers lose
Notwithstanding that the parties behaved as if the policies belonged to Opco, the Holdcos were the true legal owners, had the right to direct payments from the policies and could change the beneficiary at their discretion. The Holdcos realized an economic benefit as the payment of premiums by Opco caused the value of Holdco’s assets (that is, the insurance policies) to increase. It did not matter whether each Holdco was a shareholder of Opco. The benefits conferred on the Holdcos were taxable to both the Holdco that owned shares of Opco (Subsection 15(1)) and the Holdco that was not a shareholder of Opco (Subsection 246(1)).

reimbursing the premiums does not guarantee no taxable benefit will be assessed

Editors’ comment
In a September 28, 2022 Technical Interpretation (2021-0882441E5, Karri Lea Estabrooks), CRA similarly opined that a taxable benefit could arise where a corporation paid premiums for a life insurance policy it owned, but had designated a subsidiary corporation as the revocable or irrevocable beneficiary, even if the subsidiary reimbursed the policy holder for the premiums. CRA indicated that the existence and amount of a benefit would depend on all of the relevant facts and circumstances.

Also see VTN 488(8) for a discussion of a case where the individual was taxable due to payment of insurance premiums on policies where related individuals were the beneficiaries.

*On January 18, 2024, the Federal Court of Appeal (A-274-22) upheld this decision.