,canada ,cu/oms
& ,rev5ue ,ag5cy

          ,9t]pret,n ,bullet9
    
,subject3 ,9come ,tax ,act
  ,life ,9sur.e ,proce$s ,rcvd 0a
  ,private ,corpor,n or a ,"pn]%ip z a
  ,3sequ;e ( ,d1?
,numb]3 ,,it-#dcj;,r#c 7,3solidat$7
,date3 ,see ,bullet9 ,revi.ns sec;n
,ref];e3 ,! def9i;n ( 8capital divid5d
  a3.t0 9 subsec;n #hi7#a7 & p>agraph
  #ec7#a77e7 7al sec;n #hj1 ! def9i;n (
  8adju/$ co/ basis0 9 subsec;n
  #adh7#i71 & p>agraphs #adh7#b77a7 &
  #bab7#b77b7 (! ,9come ,tax ,act7

  ,late/ ,revi.n---,p>agraph #f
  ,at ! ,canada ,cu/oms & ,rev5ue ,ag5cy
7,,ccra71 we issue 9come tax 9t]pret,n
bullet9s 7,,it's7 9 ord] 6provide
te*nical 9t]pret,ns & posi;ns reg>d+
c]ta9 provi.ns 3ta9$ 9 9come tax law4
,due 6_! te*nical nature1 ,,it's >e   #a
             ,,it-#dcj;,r#c
us$ prim>ily 0\r /aff1 tax speciali/s1 &
o!r 9dividuals :o h an 9t]e/ 9 tax
matt]s4 ,= ^? r1d]s :o pref] a less
te*nical explan,n (! law1 we (f] o!r
public,ns1 s* z tax guides & pamphlets4
  ,:ile ! -;ts 9 a "picul> p>agraph 9 an
,,it may relate 6provi.ns (! law 9 =ce
at ! "t !y 7 made1 s* -;ts >e n a
sub/itute =! law4 ,! r1d] %d1 "!=e1
3sid] s* -;ts 9 li<t (! relevant
provi.ns (! law 9 =ce =! "picul> tax,n
ye> 2+ 3sid]$1 tak+ 96a3.t ! e6ect ( any
relevant am5d;ts 6^? provi.ns or
relevant c\rt deci.ns o3urr+ af ! date
on : ! -;ts 7 made4
  ,subject 6! abv1 an 9t]pret,n or
posi;n 3ta9$ 9 an ,,it g5],y applies z
(! date on : x 0 publi%$1 un.s o!rwise
specifi$4 ,if "! is a subsequ5t *ange 9
t 9t]pret,n or posi;n &! *ange is
b5eficial 6taxpay]s1 x is usu,y e6ective
= future assess;ts & reassess;ts4 ,if1
on ! o!r h&1 ! *ange is n fav\ra#
6taxpay]s1 x w norm,y 2 e6ective =!   #b
             ,,it-#dcj;,r#c
curr5t & subsequ5t tax,n ye>s or =
transac;ns 5t]$ 96af ! date on : ! *ange
is publi%$4
  ,if y h any -;ts reg>d+ matt]s 4cuss$
9 an ,,it1 pl1se s5d !m to3

  ,manag]1 ,te*nical ,public,ns &
    ,projects ,sec;n
  ,9come ,tax ,rul+s ,directorate
  ,policy & ,legisl,n ,bran*
  ,canada ,cu/oms & ,rev5ue ,ag5cy
  ,ottawa ,,on ,k#a;,a #j;,l#e
  
  ,mo/ ( \r public,ns >e availa# on \r
,web site at3 _+www.ccra.gc.ca_:
  ,? v].n is only availa# electronic,y4







                                      #c
                 ,3t5ts
    
,applic,n
,summ>y
,4cus.n & ,9t]pret,n
  ,tax ,3sequ;es 6,recipi5ts ( ,life
    ,9sur.e ,proce$s 7p>agraphs #a-b7
  ,tax ,3sequ;es 6,recipi5ts ( ,divid5ds
    7p>agraphs #c-d7
  ,def9i;n ( 8,net ,proce$s0 7p>agraph
    #e7
  ,life ,9sur.e ,policy ,us$ z ,secur;y
    = ,9debt$;s 7p>agraphs #f-h7
  ,applic,n ( ,sec;n #hj 7p>agraphs
    #i-aj7
,bullet9 ,revi.ns

               ,applic,n
    
  ,? bullet9 is a 3solid,n (! foll[+3
    --,,it-#dcj;,r#c dat$ ,febru>y #aj1
      #aiig2 &
    --subsequ5t am5d;t "!to4
    
                                      #d
             ,,it-#dcj;,r#c
  ,= fur!r "picul>s1 see ! 8,bullet9
,revi.ns0 sec;n ne> ! 5d ( ? bullet94

                ,summ>y
    
  ,? bullet9 4cusses ! 9come tax
3sequ;es (! receipt1 0a private corpor,n
or "pn]%ip1 (! proce$s (a life 9sur.e
policy z a 3sequ;e (! d1? (! p]son ^:
life 0 9sur$4 ,! net proce$s (a life
9sur.e policy 7ess5ti,y ! proce$s m9us !
adju/$ co/ basis (! policy71 if rcvd 0a
private corpor,n1 >e a4$ 6xs capital
divid5d a3.t4 ,g5],y1 :5 ! requir$
elec;n is made1 a tax-free 4tribu;n ( ?
am.t c !n 2 made 6! %>ehold]s (!
corpor,n4 ,! net proce$s (a life 9sur.e
policy1 if rcvd 0a "pn]%ip1 9cr1se !
adju/$ co/ base ( ea* "pn]'s 9t]e/ 9 !
"pn]%ip4
  ,! capital divid5d a3.t is "p (! sy/em
= 9tegrat+ ! corporate & %>ehold] 9come
tax ( private corpor,ns & is 9t5d$
6pres]ve ! "* ( non-taxa# receipts    #e
             ,,it-#dcj;,r#c
7s* z ! proce$s ( c]ta9 life 9sur.e
policies7 (a corpor,n 9 ! h&s ( xs
%>ehold]s4
--------------------------------------#b
          ,4cus.n & ,9t]pret,n
    
      ,tax ,3sequ;es 6,recipi5ts (
             ,life ,9sur.e
    ,proce$s 7p>agraphs #a-b7

#a4 ,p>agraph 7d7 (! def9i;n ( 8capital
  divid5d a3.t0 9 subsec;n #hi7#a7
  provides ! rules =! a4i;n (! net
  proce$s (a life 9sur.e policy 6!
  capital divid5d a3.t (a private
  corpor,n4
#b4 ,subp>agraph #ec7#a77e77;iii7
  provides = an a4i;n 6! adju/$ co/ base
  ( an 9t]e/ 9 a "pn]%ip 9 respect (a
  "pn]'s %>e (! net proce$s (a life
  9sur.e policy rcvd 0! "pn]%ip4


                                      #f
      ,tax ,3sequ;es 6,recipi5ts (   a#b
       ,divid5ds 7p>agraphs #c-d7
    
#c4 ,a private corpor,n may elect 6pay
  xs %>ehold]s a divid5d \ ( xs capital
  divid5d a3.t4 ,^! divid5ds d n 3/itute
  9come 6! %>ehold] resid5t 9 ,canada &1
  9 ! case ( capital divid5ds rcvd 0a
  private corpor,n1 >e 9clud$ 9 !
  corpor,n's capital divid5d a3.t4 ,if !
  divid5d 0 pd f ano!r corpor,n's life
  9sur.e capital divid5d a3.t1 s* a
  divid5d rcvd 2f ,may #bd1 #aihe1 is
  9clud$ 9 ! recipi5t corpor,n's life
  9sur.e capital divid5d a3.t4 ,al? a
  divid5d pd f ! life 9sur.e capital
  divid5d a3.t 0 n 9clud$ 9 ! %>ehold]'s
  9come1 ! am.t (! divid5d reduc$ !
  adju/$ co/ base ( c]ta9 %>es1 0virtue
  ( p>agraph #ec7#b77r7 z x !n appli$1
  if ! %>es 7 acquir$ z ! result ( any
  9dividual's d1?4 ,! bal.e (!
  corpor,n's life 9sur.e capital divid5d
  a3.t immly 2f ,may #bd1 #aihe1 2came a
  "p (! corpor,n's capital divid5d    #g
             ,,it-#dcj;,r#c          b#b
  a3.t at t "t4 ,! curr5t v].n (
  ,,it-#ff1 ,capital ,divid5ds1 4cusses
  ! proc$ures requir$ 6pay a divid5d f a
  private corpor,n's capital divid5d
  a3.t4

  ,non-resid5t %>ehold]s >e subject 6a
  #be p] c5t tax on divid5ds pd f a
  corpor,n's capital divid5d a3.t
  pursuant 6p>agraph #bab7#b77b74 ,h["e1
  a non-resid5t %>ehold] may qualify =
  relief 9 ! =m (a reduc$ rate ( )hold+
  tax on s* divid5ds "u a provi.n (a
  relevant tax tr1ty )a =eign c.try t
  has ! =ce ( law 9 ,canada4
#d4 ,subp>agraph #ec7#a77e77;ii7
  provides = an a4i;n 6! adju/$ co/ base
  ( an 9t]e/ 9 a "pn]%ip on ! receipt (
  capital & life 9sur.e capital divid5ds
  0! "pn]%ip equal 6ea* "pn]'s %>e ( ^?
  divid5ds4


                                      #h
       ,def9i;n ( 8,net ,proce$s0    c#b
             7p>agraph #e7
    
#e4 ,z 9dicat$ 9 p>agraphs #a & #b abv1
  ! 8net proce$s0 (a life 9sur.e policy1
  if rcvd 0a private corpor,n1 >e a4$
  6xs capital divid5d a3.t or1 if rcvd
  0a "pn]%ip1 9cr1se ! adju/$ co/ base
  (a "pn]'s 9t]e/ 9 ! "pn]%ip4 ,! t]m
  8net proce$s0 m1ns ! excess (! proce$s
  (! life 9sur.e policy rcvd z a 3sequ;e
  (! d1? (! p]son ^: life 0 9sur$ ov]3
  7a7 ! am.ts pd z premiums 7see !
    def9i;n ( 8premium0 9 subsec;n
    #adh7#i77 "u ! policy ": ! proce$s 7
    rcvd af #aiga & 2f ,april #a1 #aigg2
    or
  7b7 ! adju/$ co/ basis (! policy1 z
    def9$ 9 subsec;n #adh7#i71 immly 2f
    ! d1? (! p]son 9sur$1 ": ! proce$s 7
    rcvd af ,m>* #ca1 #aigg4
  ,any a3umulat$ policy divid5ds & 9t]e/
  pd \ at ! "t ( pay;t (! d1? claim >e
  exclud$ f .proce$s describ$ abv s9ce !
  "r 6s* pay;ts does n >ise z a       #i
             ,,it-#dcj;,r#c          d#b
  3sequ;e (! d1? (! p]son ^: life 0
  9sur$4 ,any policy divid5d t a
  policyhold] has 2come 5titl$ 6rcv
  reduces ! .adju/$ .co/ .basis (!
  policy pursuant 6p>agraph #adh7#b77a7
  &! def9i;n ( 8adju/$ co/ basis40
  ,acly1 all s* divid5ds 7:e!r or n !y
  >e left 6a3umulate7 w 2 reflect$ 9 !
  8net proce$s0 if ! proce$s 7 rcvd af
  ,m>* #ca1 #aigg4 ,h["e1 t por;n (
  policy divid5ds rcvd or receiva# 9
  tax,n ye>s 2g9n+ af ,decemb] #bj1
  #aiia1 t >e automatic,y appli$ 6pay a
  premium "u ! policy or repay a policy
  loan "u ! policy1 z provid$ = "u !
  t]ms & 3di;ns (! policy1 >e exclud$ f
  ! proce$s ( 4posi;n4 ,! 8adju/$ co/
  basis0 7z def9$ 9 subsec;n #adh7#i77
  (a life 9sur.e policy is n 9cr1s$ 0t
  por;n ( s* divid5ds 2c !y >e exclud$ f
  ! total ( all am.ts pd 9 respect (a
  premium "u ! policy4

                                     #aj
      ,life ,9sur.e ,policy ,us$ z   e#b
          ,secur;y = ,9debt$;s
            7p>agraphs #f-h7
    
#f4 ,a life 9sur.e policy may 2 us$
  6secure ! 9debt$;s (a private corpor,n
  or a "pn]%ip ) "p or all (! proce$s
  >is+ ^u ! d1? (! p]son ^: life 0 9sur$
  2+ pd directly 6! cr$itor z b5efici>y
  or z an assignee = secur;y4 ,9 s*
  cases1 :e!r or n ! premium co/ is
  borne directly or 9directly 0! debtor1
  ! 5title;t 6! a4i;n 6! capital divid5d
  a3.t 7or ! 5title;t ( xs "pn]s 6an
  a4i;n 6! adju/$ co/ base ( ea* ( _!
  "pn]%ip 9t]e/s7 rema9s ) t cr$itor 7or
  xs "pn]s74

  ,h["e1 :5 a life 9sur.e policy has be5
  assign$ z collat]al = secur+ 9debt$;s
  7z oppos$ 6an absolute assign;t (!
  policy7 or is ! subject (a hypo!c>y
  claim 0a cr$itor1 &! debtor rema9s !
  b5efici>y or policyhold]1 ! proce$s 9
  excess (! adju/$ co/ basis (!      #aa
             ,,it-#dcj;,r#c          f#b
  policy wd 2 9clud$ 9 ! capital divid5d
  a3.t (! debtor4 ,? is s 2c1 9 s*
  cases1 ! proce$s (! 9sur.e policy wd 2
  3/ructively rcvd 0! debtor 9 xs
  capac;y z b5efici>y or policyhold]1
  ev5 ?\< pd directly 6! cr$itor 9
  a3ord.e )! assign;t or hypo!c4 ,!
--------------------------------------#c
  cr$itor is nei ! b5efici>y (! policy
  nor ! policyhold] & wd n 2 5titl$
  69clude ! proce$s 9 xs capital divid5d
  a3.t 2c ! am.t x rcvs wd n 2 3sid]$
  6be proce$s (a life 9sur.e policy4

  ,fur!rmore1 ! curr5t v].n ( ,,it-#cji1
  ,premiums on ,life ,9sur.e ,us$ z
  ,collat]al1 3ta9s 9=m,n on ! limit$
  deduc;n availa# "u p>agraph
  #bj7#a77e4#b7 = premiums paya# "u a
  life 9sur.e policy :5 ! policy has be5
  assign$ 6a re/rict$ f9ancial 9/itu;n
  =a loan4
#g4 ,": an am.t 6: subp>agraphs
  #ec7#a77e77;ii7 & 7;iii7 apply     #ab
             ,,it-#dcj;,r#c          a#c
  is rcvd 0a "pn]%ip & allocat$ 6a "pn]
  t is a private corpor,n1 ! corpor,n
  may add ! am.t s allocat$ 6xs capital
  divid5d a3.t or life 9sur.e capital
  divid5d a3.t1 z describ$ 9 p>agraph #a
  abv1 z if ! corpor,n _h rcvd ! am.t
  allocat$ 6x at ! "t ! "pn]%ip rcvd x4
#h4 ,! 9cr1se 9 ! capital divid5d a3.t1
  or ! adju/$ co/ base (a "pn]%ip 9t]e/
  o3urs at ! "t ( receipt ( proce$s r
  ?an ! "t ( 5title;t 6proce$s4

         ,applic,n ( ,sec;n #hj
           7p>agraphs #i-aj7
    
#i4 ,sec;n #hj applies 6a ga9 r1liz$ 0a
  taxpay] on settle;t (a 8-m]cial
  oblig,n0 )\t pay;t or ) 9su6ici5t
  pay;t4 ,if ! life (a debtor 7or a
  pr9cipal %>ehold] or an (fic] (a
  debtor corpor,n or a "pn] (a debtor
  "pn]%ip7 is 9sur$ &! co/ is borne 0!
  cr$itor )\t 2+ pass$ directly or
  9directly on 6! debtor1 proce$s    #ac
             ,,it-#dcj;,r#c          b#c
  rcvd on d1? t >e appli$ 6ext+ui% or
  reduce ! debtor's 8-m]cial oblig,n0 >e
  n reg>d$ z hav+ be5 pd4 ,?us1 !
  provi.ns ( sec;n #hj w apply4
  ,simil>ly1 if ! cr$itor agrees 6waive
  ! repay;t (! bal.e [+ on a 8-m]cial
  oblig,n0 9 ! ev5t (! d1? (! debtor1
  sec;n #hj applies4
#aj4 ,": an 9dividual :o has issu$ a
  8-m]cial oblig,n0 dies1 p>agraph
  #hj7#b77p7 applies :5 s* an oblig,n is
  subsequ5tly settl$ if3
    --! -m]cial oblig,n is \t/&+ at ! "t
      (! 9dividual's d1?2 &
    --! 9dividual's e/ate 0 lia# = t
      oblig,n 2f x 0 settl$ or ext+ui%$4
  ,p>agraph #hj7#b77p7 5sures t ! e/ate
  is deem$ 6h issu$ ! -m]cial debt
  oblig,n at ! same "t & 9 ! same
  circum/.es z ! oblig,n 0 issu$ 0!
  9dividual4 ,) c]ta9 excep;ns1 if a
  -m]cial oblig,n t is issu$ 0an
  9dividual has be5 settl$ 0! e/ate (!
  9dividual )9 #f mon?s (!           #ad
             ,,it-#dcj;,r#c          c#c
  9dividual's d1?1 &! e/ate 0 lia# =!
  oblig,n immly 2f ! oblig,n 0 settl$1 !
  rules 9 p>agraph #hj7#b77q7 apply4 ,9
  "picul>1 ! oblig,n is deem$ 6h be5
  settl$ at ! 2g9n+ (! "d ! 9dividual
  di$4 ,9 e6ect1 ? m1ns t ! 9dividual is
  subject 6! debt =give;s rules 9 sec;n
  #hj at ! "t ! oblig,n is deem$ 6be
  settl$ & if "! is a 8=giv5 am.t10 z
  def9$ 9 subsec;n #hj7#a71 x is appli$
  6reduce ! 9dividual's tax attributes 9
  a specifi$ ord]1 z requir$
  0subp>agraph #hj7#b77c71 & subsec;ns
  #hj7#c7 to 7#ab74









                                     #ae
           ,bullet9 ,revi.ns         d#c
    
  ,p>agraphs #a 6#e & #g 6#aj h n be5
revis$ s9ce ! issu.e ( ,,it-#dcj;,r#c on
,febru>y #aj1 #aiig4
  ,p>agraph #f is revis$ 6cl>ify !
,,ccra's posi;n on life 9sur.e policies
assign$ z collat]al = secur+ 9debt$;s or
subject 6a hypo!c>y claim 9 ,quebec &!
possi# impact on ! debtor's capital
divid5d a3.t ": ! debtor rema9s !
b5efici>y or policyhold]4 ,? cl>ific,n
_h orig9,y be5 expla9$1 9 "p1 9 ,9come
,tax ,te*nical ,news ,numb] #aj ( ,july
#aa1 #aiig4 ,9 a4i;n1 \r posi;n )
respect 6hypo!c>y claims 9 ,quebec has
be5 cl>ifi$4 7,decemb] #b1 #bjjb7







                                     #af