2015-0573841C6 2015 CLHIA Roundtable – Winding-up and ACB

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.

Author: Johnstone, Alexander
Section: ITA 69(5), 88(2), 148(7)

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

All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without the prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5.

© Her Majesty the Queen in Right of Canada, 2015

Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistribuer de l'information, sous quelque forme ou par quelque moyen que ce soit, de façon électronique, mécanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.

© Sa Majesté la Reine du Chef du Canada, 2015