Income Tax Regulations

309 (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 as determined under section 2402, 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.