Income Tax Regulations (C.R.C., c. 945)

Regulations are current to 2017-04-12 and last amended on 2017-01-01. Previous Versions

Net Cost of Pure Insurance and Mortality Gains and Losses

  •   (1) For the purposes of subparagraph 20(1)(e.2)(ii) and paragraph (a) of the description of L in the definition adjusted cost basis in subsection 148(9) of the Act, the net cost of pure insurance for a year in respect of a taxpayer’s interest in a life insurance policy is

    • (a) if, determined at the end of the year, the policy was issued before 2017, the amount determined by the formula

      A × (B – C)

      where

      A
      is the probability, computed on the basis of the rates of mortality under the 1969–75 mortality tables of the Canadian Institute of Actuaries published in Volume XVI of the Proceedings of the Canadian Institute of Actuaries, or on the basis described in subsection (1.1), that an individual who has the same relevant characteristics as the individual whose life is insured will die in the year,
      B
      is the benefit on death in respect of the interest at the end of the year, and
      C
      is the accumulating fund (determined without regard to any amount payable in respect of the policy loan) in respect of the interest at the end of the year or the interest’s cash surrender value at the end of the year, depending on the method regularly followed by the life insurer in computing amounts under this subsection; and
    • (b) if, determined at the end of the year, the policy was issued after 2016, the total of all amounts each of which is an amount determined in respect of a coverage in respect of the interest by the formula

      A × (B – C)

      where

      A
      is the probability, computed on the basis of the rates of mortality determined in accordance with paragraph 1401(4)(b), or on the basis described in subsection (1.2), that an individual whose life is insured under the coverage will die in the year,
      B
      is the benefit on death under the coverage in respect of the interest at the end of the year, and
      C
      is the amount determined by the formula

      D + E

      where

      D
      is the portion, in respect of the coverage in respect of the interest, of the amount that would be the present value, determined for the purposes of section 307, on the last policy anniversary that is on or before the last day of the year, of the fund value of the coverage if the fund value of the coverage were equal to the fund value of the coverage at the end of the year, and
      E
      is the portion, in respect of the coverage in respect of the interest, of the amount 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) in respect of the coverage, if the benefit on death under the coverage, and the fund value of the coverage, on that policy anniversary were equal to the benefit on death under the coverage and the fund value of the coverage, respectively, at the end of the year.
  • (1.1) If premiums for a life insurance policy do not depend directly on smoking or sex classification, the probability referred to in paragraph (1)(a) may be determined using rates of mortality otherwise determined, provided that for each age for the policy, the expected value of the aggregate net cost of pure insurance, calculated using those rates of mortality, is equal to the expected value of the aggregate net cost of pure insurance, calculated using the rates of mortality under the 1969–75 mortality tables of the Canadian Institute of Actuaries published in Volume XVI of the Proceedings of the Canadian Institute of Actuaries.

  • (1.2) If premiums or costs of insurance charges for a coverage under a life insurance policy do not depend directly on smoking or sex classification, the probability referred to in paragraph (1)(b) may be determined using rates of mortality otherwise determined, provided that for each age for the coverage, the expected value of the aggregate net cost of pure insurance, calculated using those rates of mortality, is equal to the expected value of the aggregate net cost of pure insurance, calculated using the rates of mortality that would be calculated under paragraph (1)(b) in respect of the coverage using the mortality tables described in paragraph 1401(4)(b).

  • (2) Subject to subsection (4), for the purposes of this section and of the description of G in the definition adjusted cost basis in subsection 148(9) of the Act, a mortality gain immediately before the end of any calendar year after 1982 in respect of a taxpayer’s interest in a life annuity contract means such reasonable amount in respect of the taxpayer’s interest in the life annuity contract at that time that the life insurer determines to be the increase to the accumulating fund in respect of the interest that occurred during that year as a consequence of the survival to the end of the year of one or more of the annuitants under the life annuity contract.

  • (3) Subject to subsection (4), for the purposes of this section and of paragraph (c) of the description of L in the definition adjusted cost basis in subsection 148(9) of the Act, a mortality loss immediately before a particular time after 1982 in respect of an interest in a life annuity contract disposed of immediately after that particular time as a consequence of the death of an annuitant under the life annuity contract means such reasonable amount that the life insurer determines to be the decrease, as a consequence of the death, in the accumulating fund in respect of the interest assuming that, in determining such decrease, the accumulating fund immediately after the death is determined in the manner described in subparagraph 307(1)(b)(i).

  • (4) In determining an amount for a year in respect of an interest in a life annuity contract under subsection (2) or (3), the expected value of the mortality gains in respect of the interest for the year shall be equal to the expected value of the mortality losses in respect of the interest for the year and the mortality rates for the year used in computing those expected values shall be those that would be relevant to the interest and that are specified under such of paragraphs 1403(1)(c), (d) and (e) as are applicable.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending Acts and regulations. SOR/83-865, s. 5;
  • SOR/91-290, s. 2;
  • SOR/94-415, s. 3;
  • SOR/94-686, s. 55(F);
  • SOR/2011-188, s. 11;
  • 2014, c. 39, s. 83.

Prescribed Premiums and Prescribed Increases

[SOR/2011-188, s. 12(F)]
  •  (1) For the purposes of this section and section 306, and of subsection 89(2) of the Act, a premium at any time under a life insurance policy is a “prescribed premium” if the total amount of one or more premiums paid at that time under the policy exceeds the amount of premium that, under the policy, was scheduled to be paid at that time and that was fixed and determined on or before December 1, 1982, adjusted for such of the following transactions and events that have occurred after that date in respect of the policy:

    • (a) a change in underwriting class;

    • (b) a change in premium due to a change in frequency of premium payments within a year that does not alter the present value, at the beginning of the year, of the total premiums to be paid under the policy in the year;

    • (c) an addition or deletion of accidental death or guaranteed purchase option benefits or disability benefits that provide for annuity payments or waiver of premiums;

    • (d) a premium adjustment as a result of interest, mortality or expense considerations, or of a change in the benefit on death under the policy relating to an increase in the Consumer Price Index (as published by Statistics Canada under the authority of the Statistics Act) where such adjustment

      • (i) is made by the life insurer on a class basis pursuant to the policy’s terms as they read on December 1, 1982, and

      • (ii) is not made as a result of the exercise of a conversion privilege under the policy;

    • (e) a change arising from the provision of an additional benefit on death under a participating life insurance policy, as defined in subsection 138(12) of the Act, as, on account or in lieu of payment of, or in satisfaction of

      • (i) policy dividends or other distributions of the life insurer’s income from its participating life insurance business, or

      • (ii) interest earned on policy dividends that are held on deposit by the life insurer;

    • (f) redating lapsed policies, if the policy was reinstated not later than 60 days after the end of the calendar year in which the lapse occurred, or redating for policy loan indebtedness;

    • (g) a change in premium due to a correction of erroneous information contained in the application for the policy;

    • (h) payment of a premium after its due date, or payment of a premium no more than 30 days before its due date, as established on or before December 1, 1982; and

    • (i) the payment of interest described in paragraph (a) of the definition premium in subsection 148(9) of the Act.

  • (2) For the purposes of subsections 12.2(9) and 89(2) of the Act, a “prescribed increase” in a benefit on death under a life insurance policy has occurred at any time where the amount of the benefit on death under the policy at that time exceeds the amount of the benefit on death at that time under the policy that was fixed and determined on or before December 1, 1982, adjusted for such of the following transactions and events that have occurred after that date in respect of the policy:

    • (a) an increase resulting from a change described in paragraph (1)(e);

    • (b) a change as a result of interest, mortality or expense considerations, or an increase in the Consumer Price Index (as published by Statistics Canada under the authority of the Statistics Act) where such change is made by the life insurer on a class basis pursuant to the policy’s terms as they read on December 1, 1982;

    • (c) an increase in consequence of the prepayment of premiums (other than prescribed premiums) under the policy where such increase does not exceed the aggregate of the premiums that would otherwise have been paid;

    • (d) an increase in respect of a policy for which

      • (i) the benefit on death was, at December 1, 1982, a specific mathematical function of the policy’s cash surrender value or factors including the policy’s cash surrender value, and

      • (ii) that function has not changed since that date,

      unless any part of such increase is attributable to a prescribed premium paid in respect of a policy or to income earned on such a premium; and

    • (e) an increase that is granted by the life insurer on a class basis without consideration and not pursuant to any term of the contract.

  • (3) For the purposes of subsections (1) and (2), a life insurance policy that is issued as a result of the exercise of a renewal privilege provided under the terms of another policy as they read on December 1, 1982 shall be deemed to be a continuation of that other policy.

  • (4) For the purposes of subsection (2), a life insurance policy that is issued as a result of the exercise of a conversion privilege provided under the terms of another policy as they read on December 1, 1982 shall be deemed to be a continuation of that other policy except that any portion of the policy relating to the portion of the benefit on death, immediately before the conversion, that arose as a consequence of an event occurring after December 1, 1982 and described in paragraph (1)(e) shall be deemed to be a separate life insurance policy issued at the time of the conversion.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending Acts and regulations. SOR/83-865, s. 5;
  • SOR/88-165, s. 30(F);
  • SOR/94-686, s. 55(F);
  • SOR/2011-188, s. 13;
  • 2013, c. 34, s. 379.
 
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