8 May 2012 CALU Roundtable Q. 6, 2012-043564

Shareholders of a corporation use a buy-sell agreement to requires the corporation to acquire insurance on the shareholders' lives (and pay the premiums thereunder) to fund share purchase obligations under the agreement, and further agree to use a third party (the "Insurance Trustee") to hold and apply the insurance proceeds as directed under the agreement, with the corporation being required to pay any insurance proceeds over to the Insurance Trustee upon receipt. Before indicating that such proceeds would be added to the capital dividend account of the corporation as amounts received by it, CRA stated:

A trustee can reasonably be considered to act as agent for a beneficiary when the trustee has no significant powers or responsibilities, the trustee can take no action without instructions from that beneficiary and the trustee's only function is to hold legal title to the property. In order for the trustee to be considered as the agent for all the beneficiaries of a trust, it would generally be necessary for the trust to consult and take instructions from each and every beneficiary with respect to all dealings with all of the trust property.

On the same facts as for Q. 6.1 above except that the insurance policy names the Insurance Trustee as the beneficiary of the policy, for example, "as beneficiary in trust as bare trustee for the Corporation" - or simply names the Insurance Trustee without specific reference to its capacity as a bare trustee or agent, CRA stated:

if the Insurance Trustee can reasonably be considered to act as agent for its sole beneficiary Corporation A such that the arrangement is deemed not to be a trust for the purposes of the Act, Corporation A would generally be considered to have received insurance proceeds for purposes of its capital dividend account.

On the same facts as for Q. 6.1 above except that the buy-sell agreement gives an irrevocable direction to the insurer to pay the proceeds over to the Insurance Trustee upon the death of a shareholder, CRA stated:

if the Insurance Trustee can reasonably be considered to act as agent for its sole beneficiary Corporation A such that the arrangement is deemed not to be a trust for the purposes of the Act, Corporation A may generally be considered to have received insurance proceeds for purposes of its capital dividend account provided that the irrevocable direction given by Corporation A to the insurer would not in any way negate the agency relationship between Corporation A and the Insurance Trustee.

Shareholders of a corporation use a buy-sell agreement to requires the corporation to acquire insurance on the shareholders' lives (and pay the premiums thereunder) to fund share purchase obligations under the agreement, and further agree to use a third party (the "Insurance Trustee") to hold and apply the insurance proceeds as directed under the agreement, with the corporation being required to pay any insurance proceeds over to the Insurance Trustee upon receipt. Before indicating that such proceeds would be added to the capital dividend account of the corporation as amounts received by it, CRA stated:

A trustee can reasonably be considered to act as agent for a beneficiary when the trustee has no significant powers or responsibilities, the trustee can take no action without instructions from that beneficiary and the trustee's only function is to hold legal title to the property. In order for the trustee to be considered as the agent for all the beneficiaries of a trust, it would generally be necessary for the trust to consult and take instructions from each and every beneficiary with respect to all dealings with all of the trust property.