Mr. Chen, a business owner in Vancouver, owns a life insurance policy on his life with a face amount of $1,000,000, held within his corporation. The policy has a cash surrender value of $150,000 and an Adjusted Cost Basis (ACB) of $50,000. If Mr. Chen dies, and the death benefit is paid to the corporation, what amount will be credited to the Capital Dividend Account (CDA)?

Question: Mr. Chen, a business owner in Vancouver, owns a life insurance policy on his life with a face amount of $1,000,000, held within his corporation. The policy has a cash surrender value of $150,000 and an Adjusted Cost Basis (ACB) of $50,000. If Mr. Chen dies, and the death benefit is paid to the corporation, what amount will be credited to the Capital Dividend Account (CDA)?

Answer options:

• $1,000,000 ✅ $950,000
• $850,000
• $900,000

Correct answer: $950,000

Explanation: The Capital Dividend Account (CDA) credit on the death of an insured under a corporate-owned life insurance policy is calculated as the death benefit received by the corporation less the policy's Adjusted Cost Basis (ACB) immediately before death. Thus, $1,000,000 - $50,000 = $950,000.