Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.))

Life Insurance Policies

Marginal note:Amounts included in computing policyholder’s income

• 148 (1) There shall be included in computing the income for a taxation year of a policyholder in respect of the disposition of an interest in a life insurance policy, other than a policy that is or is issued pursuant to

  • (a) a registered pension fund or plan,

  • (b) a registered retirement savings plan,

  • (b.1) a registered retirement income fund,

  • (b.2) a TFSA,

  • (b.3) a pooled registered pension plan,

  • (b.4) a FHSA,

  • (c) an income-averaging annuity contract,

  • (d) a deferred profit sharing plan, or

  • (e) an annuity contract if

    • (i) the payment for the annuity contract was deductible under paragraph 60(l) in computing the policyholder’s income,

    • (i.1) the annuity contract is a qualifying trust annuity with respect to a taxpayer and the amount paid to acquire it was deductible under paragraph 60(l) in computing the taxpayer’s income, or

    • (ii) the policyholder acquired the annuity contract in circumstances to which subsection 146(21) applied,

  the amount, if any, by which the proceeds of the disposition of the policyholder’s interest in the policy that the policyholder, beneficiary or assignee, as the case may be, became entitled to receive in the year exceeds the adjusted cost basis to the policyholder of that interest immediately before the disposition.

• Marginal note:Amount included in computing taxpayer’s income

  (1.1) There shall be included in computing the income for a taxation year of a taxpayer in respect of a disposition of an interest in a life insurance policy described in paragraph (e) of the definition disposition in subsection 148(9) the amount, if any, by which the amount of a payment described in paragraph (e) of that definition that the taxpayer became entitled to receive in the year exceeds the amount that would be the taxpayer’s adjusted cost basis of the taxpayer’s interest in the policy immediately before the disposition if, for the purposes of the definition adjusted cost basis in subsection 148(9), the taxpayer were, in respect of that interest in the policy, the policyholder.

• Marginal note:Deemed proceeds of disposition

  (2) For the purposes of subsections 148(1) and 20(20) and the definition adjusted cost basis in subsection 148(9)

  • (a) where at any time a policyholder becomes entitled to receive under a life insurance policy a particular amount as, on account of, in lieu of payment of or in satisfaction of, a policy dividend, the policyholder shall be deemed

    • (i) to have disposed of an interest in the policy at that time, and

    • (ii) to have become entitled to receive proceeds of the disposition equal to the amount, if any, by which

      • (A) the particular amount

      exceeds

      • (B) the part of the particular amount applied immediately after that time to pay a premium under the policy or to repay a policy loan under the policy, as provided for under the terms and conditions of the policy;

  • (b) where in a taxation year a holder of an interest in, or a person whose life is insured or who is the annuitant under, a life insurance policy (other than an annuity contract or an exempt policy) last acquired after December 1, 1982 or an annuity contract (other than a life annuity contract, as defined by regulation, entered into before November 13, 1981 or a prescribed annuity contract) dies, the policyholder shall be deemed to have disposed of the policyholder’s interest in the policy or the contract, as the case may be, immediately before the death;

  • (c) where, as a consequence of a death, a disposition of an interest in a life insurance policy is deemed to have occurred under paragraph 148(2)(b), the policyholder immediately after the death shall be deemed to have acquired the interest at a cost equal to the accumulating fund in respect thereof, as determined in prescribed manner, immediately after the death;

  • (d) where at any time a life insurance policy last acquired after December 1, 1982, or a life insurance policy to which subsection 12.2(9) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, applies by virtue of paragraph 12.2(9)(b) of that Act, ceases to be an exempt policy (otherwise than as a consequence of the death of an individual whose life is insured under the policy or at a time when that individual is totally and permanently disabled), the policyholder shall be deemed to have disposed of the policyholder’s interest in the policy at that time for proceeds of disposition equal to the accumulating fund with respect to the interest, as determined in prescribed manner, at that time and to have reacquired the interest immediately after that time at a cost equal to those proceeds; and

  • (e) a policyholder with an interest in a life insurance policy, issued after 2016, that gives rise to an entitlement (of the policyholder, beneficiary or assignee, as the case may be) to receive all or a portion of an excess described in subparagraph (iv) is deemed, at a particular time, to dispose of a part of the interest and to be entitled to receive proceeds of the disposition equal to that excess or portion, as the case may be, if

    • (i) the policy is an exempt policy,

    • (ii) a benefit on death (as defined in subsection 1401(3) of the Income Tax Regulations) under a coverage (as defined in section 310 of the Income Tax Regulations for the purposes of section 306 of the Income Tax Regulations) under the policy is paid at the particular time,

    • (iii) the payment results in the termination of the coverage but not the policy, and

    • (iv) the amount of the fund value benefit (as defined in subsection 1401(3) of the Income Tax Regulations) paid at the particular time in respect of the coverage exceeds the amount

      • (A) in the case where there is no policy anniversary (as defined in section 310 of the Income Tax Regulations) before the date of death of the individual whose life is insured under the coverage, that would be determined — on the policy anniversary that is on or that first follows that date of death and as though the coverage were not terminated — in respect of the coverage under subclause (A)(I) of the description of B in subparagraph 306(4)(a)(iii) of the Income Tax Regulations, and

      • (B) in any other case, that is determined — on the last policy anniversary before the date of the death of the individual whose life is insured under the coverage — in respect of the coverage under subclause (A)(I) of the description of B in subparagraph 306(4)(a)(iii) of the Income Tax Regulations as it applies for the purpose of subparagraph 306(1)(b)(ii) of the Income Tax Regulations.

• Marginal note:Special rules for certain policies

  (3) For the purposes of this section, where all or any part of an insurer’s reserves for a life insurance policy vary in amount depending on the fair market value of a specified group of properties (in this subsection referred to as a “segregated fund”),

  • (a) in computing the adjusted cost basis of the policy,

    • (i) an amount paid by the policyholder or on the policyholder’s behalf as or on account of premiums under the policy or to acquire an interest in the policy shall, to the extent that the amount was used by the insurer to acquire property for the purposes of the segregated fund, be deemed not to have been so paid, and

    • (ii) any transfer of property by the insurer from the segregated fund that resulted in an increase in the portion of its reserves for the policy that do not vary with the fair market value of the segregated fund shall be deemed to have been a premium paid under the policy by the policyholder; and

  • (b) the proceeds of the disposition of an interest in the policy shall be deemed not to include the portion thereof, if any, payable out of the segregated fund.

• Marginal note:Partial surrender — ACB prorated

  (4) If a taxpayer disposes (other than because of paragraph (2)(a) or as described in paragraph (b) of the definition disposition in subsection (9)) of a part of the taxpayer’s interest in a life insurance policy (other than an annuity contract) last acquired after December 1, 1982 or an annuity contract, the adjusted cost basis to the taxpayer, immediately before the disposition, of the part is the amount determined by the formula

  A × B/C

  where

  A

  is the adjusted cost basis to the taxpayer of the taxpayer’s interest immediately before the disposition,

  B

  is the proceeds of the disposition, and

  C

  is

  • (a) if the policy is a policy (other than an annuity contract) issued after 2016, the amount determined by the formula

    D – E

    where

    D

    is the interest’s cash surrender value immediately before the disposition, and

    E

    is the total of all amounts each of which is an amount payable, immediately before the disposition, by the taxpayer in respect of a policy loan in respect of the policy, and

  • (b) in any other case, the accumulating fund with respect to the taxpayer’s interest, as determined in prescribed manner, immediately before the disposition.

• Marginal note:Repayment of policy loan on partial surrender

  (4.01) For the purposes of the definition adjusted cost basis in subsection (9) and paragraph 60(s), a particular amount is deemed to be a repayment made immediately before a particular time by a taxpayer in respect of a policy loan in respect of a life insurance policy if

  • (a) the policy is issued after 2016;

  • (b) the taxpayer disposes of a part of the taxpayer’s interest in the policy at the particular time;

  • (c) paragraph (a) of the definition proceeds of the disposition in subsection (9) applies to determine the proceeds of the disposition of the interest;

  • (d) the particular amount is not

    • (i) otherwise a repayment by the taxpayer in respect of the policy loan, and

    • (ii) described in subparagraph (i) of the description of C in paragraph (a) of the definition proceeds of the disposition in subsection (9); and

  • (e) the amount payable by the taxpayer in respect of the policy loan is reduced by the particular amount as a consequence of the disposition.

• Marginal note:10/8 policy surrender

  (5) If a policyholder has after March 20, 2013 and before April 2014 disposed of an interest in a 10/8 policy because of a partial or complete surrender of the policy, the policyholder may deduct in computing their income for the taxation year in which the disposition occurs an amount that does not exceed the least of

  • (a) the portion of an amount, included under subsection (1) in computing their income for the year in respect of the disposition, that is attributable to an investment account described in paragraph (b) of the definition 10/8 policy in subsection 248(1) in respect of the policy,

  • (b) the total of all amounts each of which is an amount, to the extent that the amount has not otherwise been included in determining an amount under this paragraph, of a payment made after March 20, 2013 and before April 2014 that reduces the amount outstanding of a borrowing or policy loan, as the case may be, described in paragraph (a) of the definition 10/8 policy in subsection 248(1) in respect of the policy, and

  • (c) the total of all amounts each of which is an amount, to the extent that the amount has not otherwise been included in determining an amount under this paragraph, that the policyholder is entitled to receive as a result of the disposition and that is paid after March 20, 2013 and before April 2014 out of an investment account described in paragraph (b) of the definition 10/8 policy in subsection 248(1) in respect of the policy.

• Marginal note:Proceeds receivable as annuity

  (6) Where, under the terms of a life insurance policy (other than an annuity contract) last acquired before December 2, 1982, a policyholder became entitled to receive from the insurer at any time before the death of the person whose life was insured thereunder, all the proceeds (other than policy dividends) payable at that time under the policy in the form of an annuity contract or annuity payments,

  • (a) the payments shall be regarded as annuity payments made under an annuity contract;

  • (b) the purchase price of the annuity contract shall be deemed to be the adjusted cost basis of the policy to the policyholder immediately before the first payment under that contract became payable; and

  • (c) the annuity contract or annuity payments shall be deemed not to be proceeds of the disposition of an interest in the policy.

• Marginal note:Disposition at non-arm’s length and similar cases

  (7) If an interest of a policyholder in a life insurance policy is, at any time (referred to in this subsection as the disposition time), disposed of (other than a disposition under paragraph (2)(b)) by way of a gift, by distribution from a corporation or by operation of law only to any person, or in any manner whatever to any person with whom the policyholder was not dealing at arm’s length,

  • (a) the policyholder is deemed to become entitled to receive, at the disposition time, proceeds of the disposition equal to the greatest of

    • (i) the value of the interest at the disposition time,

    • (ii) an amount equal to

      • (A) if the disposition time is before March 22, 2016, nil, and

      • (B) if the disposition time is after March 21, 2016, the fair market value at the disposition time of the consideration, if any, given for the interest, and

    • (iii) an amount equal to

      • (A) if the disposition time is before March 22, 2016, nil, and

      • (B) if the disposition time is after March 21, 2016, the adjusted cost basis to the policyholder of the interest immediately before the disposition time;

  • (b) the person that acquires the interest because of the disposition is deemed to acquire it, at the disposition time, at a cost equal to the amount determined under paragraph (a) in respect of the disposition;

  • (c) in computing the paid-up capital in respect of each class of shares of the capital stock of a corporation at any time at or after the disposition time there shall be deducted the amount determined by the formula

    (A − B × C/D) × E/A

    where

    A

    is the increase, if any, as a result of the disposition, in the paid-up capital in respect of all the shares of the capital stock of the corporation,

    B

    is the amount determined under paragraph (a) in respect of the disposition,

    C

    is

    • (i) if consideration is given for the interest, the fair market value at the disposition time of consideration that is shares of the capital stock of the corporation given for the interest, and

    • (ii) if no consideration is given for the interest, 1,

    D

    is

    • (i) if consideration is given for the interest, the fair market value at the disposition time of the consideration given for the interest, and

    • (ii) if no consideration is given for the interest, 1, and

    E

    is the increase, if any, as a result of the disposition, in the paid-up capital in respect of the class of shares, computed without reference to this paragraph as it applies to the disposition;

  • (d) any contribution of capital to a corporation or partnership in connection with the disposition is deemed, to the extent that it exceeds the amount determined under subparagraph (a)(i) in respect of the disposition, not to result in a contribution of capital for the purpose of applying paragraphs 53(1)(c) and (e) at or after the disposition time;

  • (e) any contributed surplus of a corporation that arose in connection with the disposition is deemed, to the extent that it exceeds the amount determined under subparagraph (a)(i) in respect of the disposition, not to be contributed surplus for the purpose of applying subsection 84(1) at or after the disposition time; and

  • (f) if the disposition time is before March 22, 2016,

    • (i) subparagraphs (ii) and (iii) and paragraphs (c) to (e) apply in respect of the disposition only if the disposition is after 1999 and at least one person whose life was insured under the policy before March 22, 2016 is alive on March 22, 2016,

    • (ii) in applying paragraphs (c) to (e) in respect of the disposition, a reference in those paragraphs to “the disposition time” is to be read as “the beginning of March 22, 2016”,

    • (iii) if at any time (referred to in this subparagraph as the conversion time) before March 22, 2016 the paid-up capital of a class of shares of the capital stock of a corporation was increased, the increase occurred as a result of any action by which the corporation converted any of its contributed surplus into paid-up capital in respect of the class of shares, the contributed surplus arose in connection with the disposition, and subsection 84(1) did not apply to deem the corporation to pay a dividend at the conversion time in respect of the increase, in computing the paid-up capital in respect of that class of shares after March 21, 2016, there shall be deducted the amount determined by the formula

      (A − B × A/D) × C/A

      where

      A

      is the increase, if any, as a result of the conversion, in the paid-up capital in respect of all the shares of the capital stock of the corporation, computed without reference to this paragraph as it applies to the disposition,

      B

      is the amount determined under subparagraph (a)(i) in respect of the disposition,

      C

      is the increase, if any, as a result of the conversion, in the paid-up capital in respect of the class of shares, computed without reference to this paragraph as it applies to the disposition, and

      D

      is the total amount of the corporation’s contributed surplus that arose in connection with the disposition, and

    • (iv) if any consideration given for the interest includes a share of the capital stock of a corporation, the share (or a share substituted for the share) is disposed of (referred to in this subparagraph as the share disposition) after March 21, 2016 by a taxpayer and subsection 84.1(1) applies in respect of the share disposition, then for the purposes of applying section 84.1, the adjusted cost base to the taxpayer of the share immediately before the share disposition is to be reduced by the amount determined by the formula

      (A − B x A/C)/D

      where

      A

      is the total of all amounts each of which is the fair market value at the disposition time of a share of that capital stock given as consideration for the interest,

      B

      is the greater of the amount determined under subparagraph 148(7)(a)(i) in respect of the disposition and the adjusted cost basis to the policyholder of the interest immediately before the disposition,

      C

      is the fair market value at the disposition time of the consideration, if any, given for the interest, and

      D

      is the total number of shares of that capital stock given as consideration for the interest.

• Marginal note:Idem

  (8) Notwithstanding any other provision in this section, where

  • (a) an interest of a policyholder in a life insurance policy (other than an annuity contract) has been transferred to the policyholder’s child for no consideration, and

  • (b) a child of the policyholder or a child of the transferee is the person whose life is insured under the policy,

  the interest shall be deemed to have been disposed of by the policyholder for proceeds of the disposition equal to the adjusted cost basis to the policyholder of the interest immediately before the transfer, and to have been acquired by the person who acquired the interest at a cost equal to those proceeds.

• Marginal note:Inter vivos transfer to spouse

  (8.1) Notwithstanding any other provision of this section, where

  • (a) an interest of a policyholder in a life insurance policy (other than a policy that is, or is issued under, a plan or contract referred to in any of paragraphs 148(1)(a) to 148(1)(e)) is transferred to

    • (i) the policyholder’s spouse or common-law partner, or

    • (ii) a former spouse or common-law partner of the policyholder in settlement of rights arising out of their marriage or common-law partnership, and

    • (iii) [Repealed, 1994, c. 7, Sch. VIII, s. 87(3)]

  • (b) both the policyholder and the transferee are resident in Canada at the time of the transfer,

  unless an election is made in the policyholder’s return of income under this Part for the taxation year in which the interest was transferred to have this subsection not apply, the interest shall be deemed to have been disposed of by the policyholder for proceeds of the disposition equal to the adjusted cost basis to the policyholder of the interest immediately before the transfer and to have been acquired by the transferee at a cost equal to those proceeds.

• Marginal note:Transfer to spouse at death

  (8.2) Notwithstanding any other provision of this section, where, as a consequence of the death of a policyholder who was resident in Canada immediately before the policyholder’s death, an interest of the policyholder in a life insurance policy (other than a policy that is or is issued under a plan or contract referred to in any of paragraphs 148(1)(a) to 148(1)(e)) is transferred or distributed to the policyholder’s spouse or common-law partner who was resident in Canada immediately before the death, unless an election is made in the policyholder’s return of income under this Part for the taxation year in which the policyholder died to have this subsection not apply, the interest shall be deemed to have been disposed of by the policyholder immediately before the death for proceeds of the disposition equal to the adjusted cost basis to the policyholder of the interest immediately before the transfer and to have been acquired by the spouse or common-law partner at a cost equal to those proceeds.

• Marginal note:Definitions

  (9) In this section and paragraph 56(1)(d.1) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952,

  adjusted cost basis

  adjusted cost basis, at any time to a policyholder of the policyholder’s interest in a life insurance policy, means the amount determined by the formula

  (A + B + C + D + E + F + G + G.1) – (H + I + J + K + L + M + N + O)

  where

  A

  is the total of all amounts each of which is the cost of an interest in the policy acquired by the policyholder before that time but not including an amount referred to in the description of B or E,

  B

  is the total of all amounts each of which is an amount paid before that time by or on behalf of the policyholder in respect of a premium under the policy, other than amounts referred to in clause 148(2)(a)(ii)(B), in subparagraph (iii) of the description of C in paragraph (a) of the definition proceeds of the disposition or in subparagraph (b)(i) of that definition,

  C

  is the total of all amounts each of which is an amount in respect of the disposition of an interest in the policy before that time that was required to be included in computing the policyholder’s income or taxable income earned in Canada for a taxation year,

  D

  is the total of all amounts each of which is an amount in respect of the policyholder’s interest in the policy that was included by virtue of subsection 12(3) or section 12.2 or of paragraph 56(1)(d.1) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, in computing the policyholder’s income for any taxation year ending before that time or the portion of an amount paid to the policyholder in respect of the policyholder’s interest in the policy on which tax was imposed by virtue of paragraph 212(1)(o) before that time,

  E

  is the total of all amounts each of which is an amount that is in respect of the repayment, before that time and after March 31, 1978, of a policy loan and that does not exceed the amount determined by the formula,

  E.1 – E.2

  where

  E.1

  is the total of

  • (a) the proceeds of the disposition, if any, in respect of the loan,

  • (b) if the policy is issued after 2016 (and, in the case where the particular time at which the policy is issued is determined under subsection (11), the repayment is at or after the particular time), the portion of the loan applied, immediately after the loan, to pay a premium under the policy as provided for under the terms and conditions of the policy (except to the extent that the portion is described in subparagraph (i) of the description of C in paragraph (a) of the definition proceeds of the disposition in this subsection), and

  • (c) the amount, if any, described in the description of J in this definition (but not including any payment of interest) in respect of the loan, and

  E.2

  is the total all amounts each of which is an amount in respect of a repayment, of the loan, referred to in clause (2)(a)(ii)(B) or deductible under paragraph 60(s) of this Act or paragraph 20(1)(hh) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952 (as it applied in taxation years before 1985),

  F

  is the amount, if any, by which the cash surrender value of the policy as at its first anniversary date after March 31, 1977 exceeds the adjusted cost basis (determined under the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, as it would have read on that date if subsection 148(8) of that Act, as it read in its application to the period ending immediately before April 1, 1978, had not been applicable) of the policyholder’s interest in the policy on that date,

  G

  is, in the case of an interest in a life annuity contract, as defined by regulation, to which subsection 12.2(1) applies for the taxation year that includes that time (or would apply if the contract had an anniversary day in the year at a time when the taxpayer held the interest), the total of all amounts each of which is a mortality gain, as defined by regulation and determined by the issuer of the contract in accordance with the regulations, in respect of the interest immediately before the end of the calendar year ending in a taxation year commencing before that time,

  G.1

  is, in the case of an interest in a life insurance policy (other than an annuity contract) to which subsection (8.2) applied before that time, the total of all amounts each of which is a mortality gain, as defined by regulation and determined by the issuer of the policy in accordance with the regulations, in respect of the interest immediately before the end of the calendar year that ended in a taxation year that began before that time,

  H

  is the total of all amounts each of which is the proceeds of the disposition of the policyholder’s interest in the policy that the policyholder became entitled to receive before that time,

  I

  is the total of all amounts each of which is an amount in respect of the policyholder’s interest in the policy that was deducted by virtue of subsection 20(19) in computing the policyholder’s income for any taxation year commencing before that time,

  J

  is the amount payable on March 31, 1978 in respect of a policy loan in respect of the policy,

  K

  is the total of all amounts each of which is an amount received before that time in respect of the policy that the policyholder was entitled to deduct under paragraph 60(a) in computing the policyholder’s income for a taxation year,

  L

  is

  • (a) in the case of an interest in a life insurance policy (other than an annuity contract) that was last acquired after December 1, 1982 by the policyholder, the total of all amounts each of which is the net cost of pure insurance, as defined by regulation and determined by the issuer of the policy in accordance with the regulations, in respect of the interest immediately before the end of the calendar year ending in a taxation year commencing after May 31, 1985 and before that time,

  • (b) in the case of an interest in an annuity contract to which subsection 12.2(1) applies for the taxation year that includes that time (or would apply if the contract had an anniversary day in the year and while the taxpayer held the interest), the total of all annuity payments paid in respect of the interest before that time and while the policyholder held the interest, or

  • (c) in the case of an interest in a contract referred to in the description of G, the total of all amounts each of which is a mortality loss, as defined by regulation and determined by the issuer of the contract in accordance with the regulations, in respect of the interest before that time,

  M

  is, in the case of a policy that is issued after 2016 and is not an annuity contract, the total of all amounts each of which is a premium paid by or on behalf of the policyholder, or a cost of insurance charge incurred by the policyholder, before that time (and, in the case where the particular time at which the policy is issued is determined under subsection (11), at or after the particular time), to the extent that the premium or charge is in respect of a benefit under the policy other than a benefit on death (as defined in subsection 1401(3) of the Income Tax Regulations),

  N

  is, in the case of a policy that is issued after 2016 and is not an annuity contract, the total of all amounts each of which is the policyholder’s interest in an amount paid — to the extent that the cash surrender value of the policy, if any, or the fund value of the policy (as defined in subsection 1401(3) of the Income Tax Regulations), if any, is reduced by the amount paid — before that time (and, in the case where the particular time at which the policy is issued is determined under subsection (11), at or after the particular time) that

  • (a) is a benefit on death (as defined in subsection 1401(3) of the Income Tax Regulations), or a disability benefit, under the policy, and

  • (b) does not result in the termination of a coverage (as defined in subsection 1401(3) of the Income Tax Regulations) under the policy,

  O

  is, in the case of a policy that is issued after 2016 and is not an annuity contract, the total of all amounts each of which is — if a benefit on death (as defined in subsection 1401(3) of the Income Tax Regulations) under a coverage (as defined in section 310 of the Income Tax Regulations for the purposes of section 306 of the Income Tax Regulations) under the policy is paid before that time as a consequence of the death of an individual whose life is insured under the coverage (and, in the case where the particular time at which the policy is issued is determined under subsection (11), at or after the particular time) and the payment results in the termination of the coverage — the amount, if any, determined with respect to the coverage by the formula

  [P × (Q + R + S)/T] – U

  where

  P

  is the adjusted cost basis of the policyholder’s interest immediately before the termination,

  Q

  is the amount of the fund value benefit (as defined in subsection 1401(3) of the Income Tax Regulations) under the policy paid in respect of the coverage (as defined in section 310 of the Income Tax Regulations for the purposes of section 306 of the Income Tax Regulations) on the termination,

  R

  is the total of all amounts — each of which is in respect of a coverage (as defined in subsection 1401(3) of the Income Tax Regulations) in respect of a specific life or two or more specific lives jointly insured under the coverage referred to in the description of O — that would be the present value, determined for the purposes of section 307 of the Income Tax Regulations, on the last policy anniversary (as defined in section 310 of the Income Tax Regulations) on or before the termination, of the fund value of the coverage (as defined in subsection 1401(3) of the Income Tax Regulations) if the fund value of the coverage on that policy anniversary were equal to the fund value of the coverage on the termination,

  S

  is the total of all amounts — each of which is in respect of a coverage (as defined in subsection 1401(3) of the Income Tax Regulations and referred to in this description as a “particular coverage”) in respect of a specific life or two or more specific lives jointly insured under the coverage referred to in the description of O — that would be determined, on that policy anniversary, for paragraph (a) of the description of C in the definition net premium reserve in subsection 1401(3) of the Income Tax Regulations in respect of the particular coverage, if the benefit on death under the particular coverage, and the fund value of the coverage (as defined in subsection 1401(3) of the Income Tax Regulations), on that policy anniversary were equal to the benefit on death under the particular coverage and the fund value of the coverage, as the case may be, on the termination,

  T

  is the amount that would be, on that policy anniversary, the net premium reserve (as defined in subsection 1401(3) of the Income Tax Regulations) in respect of the policy for the purposes of section 307 of the Income Tax Regulations, if the fund value benefit (as defined in subsection 1401(3) of the Income Tax Regulations) under the policy, the benefit on death under each coverage (as defined in subsection 1401(3) of the Income Tax Regulations) and the fund value of each coverage (as defined in subsection 1401(3) of the Income Tax Regulations) on that policy anniversary were equal to the fund value benefit, the benefit on death under each coverage and the fund value of each coverage, as the case may be, under the policy on the termination, and

  U

  is the amount, if any, determined under subsection (4) in respect of a disposition before that time of the interest because of paragraph (2)(e) in respect of the payment in respect of the fund value benefit under the policy paid in respect of the coverage (as defined in section 310 of the Income Tax Regulations for the purposes of section 306 of the Income Tax Regulations) on the termination; (coût de base rajusté)

  amount payable

  amount payable, in respect of a policy loan, has the meaning assigned by subsection 138(12); (montant payable)

  cash surrender value

  cash surrender value at a particular time of a life insurance policy means its cash surrender value at that time computed without regard to any policy loans made under the policy, any policy dividends (other than paid-up additions) payable under the policy or any interest payable on those dividends; (valeur de rachat)

  child

  child of a policyholder includes a child as defined in subsection 70(10); (enfant)

  disposition

  disposition, in relation to an interest in a life insurance policy, includes

  • (a) a surrender thereof,

  • (b) a policy loan made after March 31, 1978,

  • (c) the dissolution of that interest by virtue of the maturity of the policy,

  • (d) a disposition of that interest by operation of law only, and

  • (e) the payment by an insurer of an amount (other than an annuity payment, a policy loan or a policy dividend) in respect of a policy (other than a policy described in paragraph 148(1)(a), 148(1)(b), 148(1)(c), 148(1)(d) or 148(1)(e)) that is a life annuity contract, as defined by regulation, entered into after November 16, 1978, and before November 13, 1981,

  but does not include

  • (f) an assignment of all or any part of an interest in the policy for the purpose of securing a debt or a loan other than a policy loan,

  • (g) a lapse of the policy in consequence of the premiums under the policy remaining unpaid, if the policy was reinstated not later than 60 days after the end of the calendar year in which the lapse occurred,

  • (h) a payment under a policy as a disability benefit or as an accidental death benefit,

  • (i) an annuity payment,

  • (j) a payment under a life insurance policy (other than an annuity contract) that

    • (i) was last acquired before December 2, 1982, or

    • (ii) is an exempt policy

    in consequence of the death of any person whose life was insured under the policy, or

  • (k) any transaction or event by which an individual becomes entitled to receive, under the terms of an exempt policy, all of the proceeds (including or excluding policy dividends) payable under the policy in the form of an annuity contract or annuity payments, if, at the time of the transaction or event, the individual whose life is insured under the policy was totally and permanently disabled; (disposition)

  interest

  interest, in relation to a policy loan, has the meaning assigned by subsection 138(12); (intérêt)

  policy loan

  policy loan means an amount advanced by an insurer to a policyholder in accordance with the terms and conditions of the life insurance policy; (avance sur police)

  premium

  premium under a policy includes

  • (a) interest paid after 1977 to a life insurer in respect of a policy loan, other than interest deductible in the 1978 or any subsequent taxation year pursuant to paragraph 20(1)(c) or 20(1)(d), and

  • (b) a prepaid premium under the policy to the extent that it cannot be refunded otherwise than on termination or cancellation of the policy,

  but does not include

  • (c) the portion of any amount paid under the policy with respect to an accidental death benefit, a disability benefit, an additional risk as a result of insuring a substandard life, an additional risk in respect of the conversion of a term policy into another policy after the end of the year, an additional risk under a settlement option, or an additional risk under a guaranteed insurability benefit, if

    • (i) in the case of an annuity contract, a policy issued before 2017 or in respect of which the particular time at which the policy is issued is determined under subsection (11), where the interest in the policy was last acquired after December 1, 1982, the payment is made after May 31, 1985 and, if the particular time at which the policy is issued is determined under subsection (11), before the particular time, or

    • (ii) in the case where the taxpayer’s interest in the policy was last acquired before December 2, 1982,

      • (A) subsection 12.2(9) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, applies to the interest,

      • (B) the particular time at which the policy is issued is determined under subsection (11), and

      • (C) the payment is made in the period that starts at the later of May 31, 1985 and the first time at which that subsection 12.2(9) applies in respect of the interest and that ends at the particular time; (prime)

  proceeds of the disposition

  proceeds of the disposition of an interest in a life insurance policy means the amount of the proceeds that the policyholder, beneficiary or assignee, as the case may be, is entitled to receive on a disposition of an interest in the policy and for greater certainty,

  • (a) in respect of a surrender or maturity thereof, means the amount determined by the formula

    (A - B) - C

    where

    A

    is the cash surrender value of the interest in the policy at the time of surrender or maturity,

    B

    is that portion of the cash surrender value represented by A that is applicable to the policyholder’s interest in the related segregated fund trust as referred to in paragraph 138.1(1)(e), and

    C

    is the total of amounts each of which is

    • (i) an amount by which the amount payable in respect of a policy loan in respect of the policy is reduced as a consequence of the disposition, except that if the policy is issued after 2016 and the disposition is of a part of the interest (and, in the case where the particular time at which the policy is issued is determined under subsection (11), the disposition occurs at or after the particular time), only to the extent that the amount represents the portion of the loan applied, immediately after the loan, to pay a premium under the policy, as provided for under the terms and conditions of the policy,

    • (ii) a premium under the policy that is due but unpaid at that time, or

    • (iii) an amount applied, immediately after the time of the surrender, to pay a premium under the policy, as provided for under the terms and conditions of the policy,

  • (b) in respect of a policy loan made after March 31, 1978 means the lesser of

    • (i) the amount of the loan, other than the part thereof applied, immediately after the loan, to pay a premium under the policy, as provided for under the terms and conditions of the policy, and

    • (ii) the amount, if any, by which the cash surrender value of the policy immediately before the loan was made exceeds the total of the balances outstanding at that time of any policy loans in respect of the policy,

  • (c) in respect of a payment described in paragraph (e) of the definition disposition in this subsection, means the amount of that payment, and

  • (d) in respect of a disposition deemed to have occurred under paragraph 148(2)(b), means the accumulating fund in respect of the interest, as determined in prescribed manner,

    • (i) immediately before the time of death in respect of a life insurance policy (other than an annuity contract) last acquired after December 1, 1982, or

    • (ii) immediately after the time of death in respect of an annuity contract; (produit de disposition)

  relevant authority

  relevant authority[Repealed, 1997, c. 25, s. 46(1)

  tax anniversary date

  tax anniversary date, in relation to a life insurance policy, means the second anniversary date of the policy to occur after October 22, 1968; (jour anniversaire d’imposition)

  value

  value at a particular time of an interest in a life insurance policy means

  • (a) where the interest includes an interest in the cash surrender value of the policy, the amount in respect thereof that the holder of the interest would be entitled to receive if the policy were surrendered at that time, and

  • (b) in any other case, nil. (valeur)

• Marginal note:Application of s. 12.2(11)

  (9.1) The definitions in subsection 12.2(11) apply to this section.

• Marginal note:Life annuity contracts

  (10) For the purposes of this section,

  • (a) a reference to “insurer” or “life insurer” shall be deemed to include a reference to a person who is licensed or otherwise authorized under a law of Canada or a province to issue contracts that are annuity contracts;

  • (b) a reference to a “person whose life was insured” shall be deemed to include a reference to an annuitant under a life annuity contract, as defined by regulation, entered into before November 17, 1978;

  • (c) where a policyholder is a person who has held an interest in a life insurance policy continuously since its issue date, the interest shall be deemed to have been acquired on the later of the date on which

    • (i) the policy came into force, and

    • (ii) the application in respect of the policy signed by the policyholder was filed with the insurer;

  • (d) except as otherwise provided, a policyholder shall be deemed not to have disposed of or acquired an interest in a life insurance policy (other than an annuity contract) as a result only of the exercise of any provision (other than a conversion into an annuity contract) of the policy; and

  • (e) where an interest in a life insurance policy (other than an annuity contract) last acquired before December 2, 1982 to which subsection 12.2(9) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, does not apply has been acquired by a taxpayer from a person with whom the taxpayer was not dealing at arm’s length, the interest shall be deemed to have been last acquired by the taxpayer before December 2, 1982.

• Marginal note:Loss of grandfathering

  (11) For the purposes of determining at and after a particular time whether a life insurance policy (other than an annuity contract) issued before 2017 is treated as issued after 2016 under this section (other than this subsection) and sections 306 (other than subsections (9) and (10)), 307, 308, 310, 1401 and 1403 of the Income Tax Regulations (except as they apply for the purposes of subsection 211.1(3)), the policy is deemed to be a policy issued at the particular time if the particular time is the first time after 2016 at which life insurance — in respect of a life, or two or more lives jointly insured, and in respect of which a particular schedule of premium or cost of insurance rates applies — is

  • (a) if the insurance is term insurance, converted to permanent life insurance within the policy; or

  • (b) if the insurance (other than insurance paid for with policy dividends or that is reinstated) is medically underwritten after 2016 (other than to obtain a reduction in the premium or cost of insurance rates under the policy), added to the policy.