Income Tax Regulations

1401 (1) For the purpose of subparagraph 138(3)(a)(i) of the Act, in computing a life insurer’s income for a taxation year from carrying on its life insurance business in Canada, there may be deducted in respect of

• (a) deposit administration fund policies, such amount as the insurer may claim that is a reasonable amount in respect of the aggregate of the insurer’s liabilities under the policies as at the end of the year and does not exceed the aggregate of the insurer’s liabilities under those policies calculated in the manner required for the purposes of the insurer’s annual report to the relevant authority for the year or, where the insurer was throughout the year subject to the supervision of the relevant authority but was not required to file an annual report with the relevant authority for the year, in its financial statements for the year;

• (b) a group term life insurance policy that provides coverage for a period not exceeding 12 months, such amount as the insurer may claim not exceeding the unearned portion of the premium paid by the policyholder for the policy at the end of the year determined by apportioning the premium paid by the policyholder equally over the period to which that premium pertains;

• (c) a life insurance policy, other than a policy referred to in paragraph (a) or (b), such amount as the insurer may claim not exceeding the greater of

  • (i) the amount, if any, by which

    • (A) the cash surrender value of the policy at the end of the year

    exceeds

    • (B) the aggregate of all amounts each of which is an amount payable in respect of a policy loan outstanding at the end of the year in respect of the policy or the interest thereon that has accrued to the insurer at the end of the year, and

  • (ii) the amount, if any, by which

    • (A) the present value at the end of the year of the future benefits provided by the policy

    exceeds the aggregate of

    • (B) the present value at the end of the year of any future modified net premiums in respect of the policy, and

    • (C) the aggregate of all amounts each of which is an amount payable in respect of a policy loan outstanding at the end of the year in respect of the policy or the interest thereon that has accrued to the insurer at the end of the year;

• (c.1) a group life insurance policy, such amount as the insurer may claim as an amount (other than an amount in respect of which a deduction may be claimed by the insurer pursuant to subsection 140(1) of the Act by reason of subparagraph 138(3)(a)(v) of the Act in computing its income for the year) in respect of a dividend, refund of premiums or refund of premium deposits provided for under the terms of the policy that will be used by the insurer to reduce or eliminate a future adverse claims experience under the policy or that will be paid or unconditionally credited to the policyholder by the insurer or applied in discharge, in whole or in part, of a liability of the policyholder to pay premiums to the insurer, not exceeding the least of

  • (i) a reasonable amount in respect of such a dividend, refund of premiums or refund of premium deposits,

  • (ii) 25 per cent of the amount of the premium payable under the terms of the policy for the 12-month period ending

    • (A) if the policy is terminated in the year, on the day the policy is terminated, and

    • (B) in any other case, at the end of the year, and

  • (iii) the amount of the reserve or liability in respect of such a dividend, refund of premiums or refund of premium deposits reported by the insurer in its annual report for the year to the relevant authority or, where the insurer was throughout the year subject to the supervision of the relevant authority for the year but was not required to file an annual report with the relevant authority for the year, in its financial statements for the year;

• (d) a policy, other than a policy referred to in paragraph (a), such amount as the insurer may claim in respect of a benefit, risk or guarantee that is

  • (i) an accidental death benefit,

  • (ii) a disability benefit,

  • (iii) an additional risk as a result of insuring a substandard life,

  • (iv) an additional risk in respect of the conversion of a term policy or the conversion of the benefits under a group policy into another policy after the end of the year,

  • (v) an additional risk under a settlement option,

  • (vi) an additional risk under a guaranteed insurability benefit,

  • (vii) a guarantee in respect of a segregated fund policy, or

  • (viii) any other benefit that is ancillary to the policy, subject to the prior approval of the Minister on the advice of the Superintendent of Insurance for Canada,

  but is not

  • (ix) a benefit, risk or guarantee in respect of which an amount has been claimed under any other paragraph of this subsection, other than paragraphs (d.1) and (d.2), by the insurer as a deduction in computing its income for the year,

  not exceeding the lesser of

  • (x) a reasonable amount in respect of the benefit, risk or guarantee, and

  • (xi) the reserve in respect of the benefit, risk or guarantee, reported by the insurer in its annual report to the relevant authority for the year or, where the insurer was throughout the year subject to the supervision of the relevant authority but was not required to file an annual report with the relevant authority for the year, in its financial statements for the year;

• (d.1) a policy referred to in paragraph (b) where, after the end of the year, a claim under the policy is made in respect of a death that occurred before the end of the year, such amount as the insurer may claim, not exceeding the lesser of

  • (i) the present value, at the end of the year, of the payments to be made in respect of the claim made under the policy or such estimate of such payments to be made in respect of the claim as is reasonable in the circumstances, and

  • (ii) 95 per cent of the amount of the reserve in respect of the claim reported by the insurer in its annual report to the relevant authority for the year or, where the insurer was throughout the year subject to the supervision of the relevant authority for the year but was not required to file an annual report with the relevant authority for the year, in its financial statements for the year;

• (d.2) a policy referred to in paragraph (c) where, after the end of the year, a claim under the policy is made in respect of a death that occurred before the end of the year, such amount as the insurer may claim, not exceeding the lesser of

  • (i) the amount, if any, by which

    • (A) the present value, at the end of the year, of the payments to be made in respect of the claim made under the policy or such estimate of such payments to be made in respect of the claim as is reasonable in the circumstances

    exceeds

    • (B) the maximum amounts that may be claimed by the insurer for the year in respect of the policy under paragraph (c) or (d), and

  • (ii) 95 per cent of the amount of the reserve in respect of the claim reported by the insurer in its annual report to the relevant authority for the year or, where the insurer was throughout the year subject to the supervision of the relevant authority but was not required to file an annual report with the relevant authority for the year, in its financial statements for the year; and

• (e) a qualified annuity, such amount as the insurer may claim not exceeding the amount, if any, by which

  • (i) the amount that would have been determined pursuant to paragraph (c) for the year if the rate of interest used (or deemed by section 1403 to have been used) by the insurer in determining the premium for the annuity were reduced by one-half of one percentage point,

  exceeds

  • (ii) the maximum amount that may be claimed by the insurer in respect of the annuity under paragraph (c).

(1.1) An amount may be deducted under subsection (1) only in respect of a life insurance policy in Canada that is a pre-1996 life insurance policy.

(2) For the purposes of subsection (1), (except in respect of subparagraph (d)(vii) thereof), any amount claimed by an insurer for the year shall not include an amount in respect of a liability of a segregated fund (within the meaning assigned segregated fund by section 138.1 of the Act).

(3) In computing the amount that a life insurer may deduct under subparagraph 138(3)(a)(i) of the Act in computing its taxable income for a taxation year, there shall be deducted from the aggregate of the amounts determined under subsection (1), the aggregate of all amounts each of which is the lesser of the following amounts determined in respect of a life insurance policy referred to in paragraph (1)(c):

• (a) the amount, if any, by which

  • (i) the amount that would be determined under clause (1)(c)(i)(B) in respect of the policy

  exceeds

  • (ii) the amount that would be determined under clause (1)(c)(i)(A) in respect of the policy, and

• (b) the amount, if any, by which

  • (i) the aggregate of the amounts that would be determined under clauses (1)(c)(ii)(B) and (C) in respect of the policy

  exceeds

  • (ii) the amount that would be determined under clause (1)(c)(ii)(A) in respect of the policy.

(4) For the purpose of subparagraph 138(3)(a)(ii) of the Act, there may be deducted, in computing a life insurer’s income for a taxation year, the amount it claims as a reserve in respect of unpaid claims received by it before the end of the year under life insurance policies in Canada that are pre-1996 life insurance policies, not exceeding the present value at the end of the year, computed using a rate of interest that is reasonable in the circumstances, of a reasonable amount in respect of those unpaid claims.