LLQP (Life Licence Qualification Program) Practice Exam · Question
What is the primary function of the Capital Dividend Account (CDA) in the context of corporate-owned life insurance?
The CDA is a notional corporate account that tracks tax-free amounts received by a private corporation. The proceeds of a life insurance policy (minus the polic
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Question: What is the primary function of the Capital Dividend Account (CDA) in the context of corporate-owned life insurance?
Answer options:
- Pay for the health insurance of all corporate employees.
- Directly reduce the corporation's small business tax rate.
- Deduct the cost of life insurance premiums from corporate income. ✅ Pay tax-free dividends to shareholders from life insurance proceeds.
Correct answer: Pay tax-free dividends to shareholders from life insurance proceeds.
Explanation: The CDA is a notional corporate account that tracks tax-free amounts received by a private corporation. The proceeds of a life insurance policy (minus the policy's ACB) are credited to the CDA, allowing the corporation to pay out tax-free dividends to shareholders.
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- A life insurance policy that offers lifelong coverage, a guaranteed death benefit, and a savings component tha
- Group benefits in Canada commonly include:
- Sarah, a 35-year-old marketing professional in Ontario, purchases a participating whole life insurance policy
- Mark, a 45-year-old business owner in British Columbia, has a Universal Life policy with a Level Cost of Insur
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