Income Tax Regulations

307 (1) For the purposes of this Part and section 12.2, paragraph 56(1)(d.1) and section 148 of the Act, accumulating fund at any particular time means,

• (a) in respect of a taxpayer’s interest in an annuity contract (other than a contract issued by a life insurer), the amount that is the greater of

  • (i) the amount, if any, by which the cash surrender value of his interest at that time exceeds the amount payable, if any, in respect of a loan outstanding at that time made under the contract in respect of the interest, and

  • (ii) the amount, if any, by which

    • (A) the present value at that time of future payments to be made out of the contract in respect of his interest

    exceeds the aggregate of

    • (B) the present value at that time of future premiums to be paid under the contract in respect of his interest, and

    • (C) the amount payable, if any, in respect of a loan outstanding at that time, made under the contract in respect of his interest;

• (b) in respect of a taxpayer’s interest in a life insurance policy (other than an exemption test policy or an annuity contract to which paragraph (1)(a) applies), the product obtained when,

  • (i) where the policy is not a deposit administration fund policy and the particular time is immediately after the death of any person on whose life the life insurance policy is issued or effected, the aggregate of the maximum amounts that could be determined by the life insurer immediately before the death in respect of the policy under paragraph 1401(1)(c) and subparagraph 1401(1)(d)(i) if the mortality rates used were adjusted to reflect the assumption that the death would occur at the time and in the manner that it did occur, and

  • (ii) in any other case, the maximum amount that could be determined at that particular time by the life insurer under paragraph 1401(1)(a), computed as though there were only one deposit administration fund policy, or under paragraph 1401(1)(c), as the case may be, in respect of the policy

  is multiplied by

  • (iii) the taxpayer’s proportionate interest in the policy,

  assuming for the purposes of this paragraph that the life insurer carried on its life insurance business in Canada, its taxation year ended at the particular time and the policy was a life insurance policy in Canada; and

• (c) in respect of an exemption test policy,

  • (i) where the policy was issued at least 20 years before the particular time, the amount that would be determined at that particular time by the life insurer under clause 1401(1)(c)(ii)(A) in respect of the policy if the insurer’s taxation year ended at that particular time, and

  • (ii) in any other case, the product obtained when the amount that would be determined under subparagraph (i) in respect of the policy on its twentieth policy anniversary is multiplied by the quotient obtained when the number of years since the policy was issued is divided by 20.

(2) For the purposes of subsection (1), when computing the accumulating fund of an interest described in

• (a) paragraph (1)(a), the amounts determined under clauses (1)(a)(ii)(A) and (B) shall be computed using,

  • (i) where an interest rate for a period used by the issuer when the contract was issued in determining the terms of the contract was less than any rate so used for a subsequent period, the single rate that would, if it applied for each period, have produced the same terms, and

  • (ii) in any other case, the rates used by the issuer when the contract was issued in determining the terms of the contract;

• (b) paragraph (1)(b), where an interest rate used for a period by a life insurer in computing the relevant amounts in paragraph 1403(1)(a) or (b) is determined under paragraph 1403(1)(c), (d) or (e), as the case may be, and that rate is less than an interest rate so determined for a subsequent period, the single rate that could, if it applied for each period, have been used in determining the premiums for the policy shall be used; and

• (c) paragraph (1)(c),

  • (i) the rates of interest and mortality used and the age of the person whose life is insured shall be the same as those used in computing the amounts described in paragraph 1403(1)(a) or (b) in respect of the life insurance policy in respect of which the exemption test policy was issued except that

    • (A) where the life insurance policy is one to which paragraph 1403(1)(e) applies and the amount determined under subparagraph 1401(1)(c)(i) in respect of that policy is greater than the amount determined under subparagraph 1401(1)(c)(ii) in respect thereof, the rates of interest and mortality used may be those used in computing the cash surrender values of that policy, and

    • (B) where an interest rate for a period otherwise determined under this subparagraph in respect of that interest is less than an interest rate so determined for a subsequent period, the single rate that could, if it applied for each period, have been used in determining the premiums for the life insurance policy shall be used, and

  • (ii) notwithstanding subparagraph (i),

    • (A) where the rates referred to in subparagraph (i) do not exist, the minimum guaranteed rates of interest used under the life insurance policy to determine cash surrender values and the rates of mortality under the Commissioners 1958 Standard Ordinary Mortality Table, as published in Volume X of the Transactions of the Society of Actuaries, relevant to the person whose life is insured under the life insurance policy shall be used, or

    • (B) where, in respect of the life insurance policy in respect of which the exemption test policy was issued, the period over which the amount determined under clause 1401(1)(c)(ii)(A) does not extend to the date determined under subparagraph 306(3)(d)(ii), the weighted arithmetic mean of the interest rates used to determine such amount shall be used for the period that is after that period and before that date.

(3) Notwithstanding paragraph (2)(c),

• (a) in the case of a life insurance policy issued after April 30, 1985, no rate of interest used for the purpose of determining the accumulating fund in respect of an exemption test policy issued in respect thereof shall be less than 4 per cent per annum; and

• (b) in the case of a life insurance policy issued before May 1, 1985, no rate of interest used for the purpose of determining the accumulating fund in respect of an exemption test policy issued in respect thereof shall be less than 3 per cent per annum.

(4) For the purposes of paragraph (1)(c),

• (a) where on the date of issue of an exemption test policy the person whose life is insured has attained the age of 75 years, the references in paragraph (1)(c) to “20” and “twentieth” shall be read as references to “10” and “tenth” respectively; and

• (b) where on the date of issue of an exemption test policy the person whose life is insured has attained the age of 66 years but not the age of 75 years, the references in paragraph (1)(c) to “20” and “twentieth” shall be read as references to

  • (i) the number obtained when the number of years by which the age of the person whose life is insured exceeds 65 years is subtracted from 20, and

  • (ii) the adjectival form of the number obtained by performing the computation described in subparagraph (i), respectively.

(5) In this section, any amount determined by reference to section 1401 shall be determined

• (a) without regard to section 1402;

• (b) as if each reference therein to the term “policy loan” were read as if that term had the meaning assigned by paragraph 148(9)(e) of the Act; and

• (c) as if clauses 1401(1)(c)(i)(B) and 1401(1)(c)(ii)(C) were read without reference to the expression “or the interest thereon that has accrued to the insurer at the end of the year”.