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

Regulations are current to 2017-09-27 and last amended on 2017-07-01. Previous Versions

DIVISION 3Special Rules

Non-Life and Life Insurance Businesses

 Any amount determined under section 1400 or 1401 shall be determined

  • (a) net of relevant reinsurance recoverable amounts; and

  • (b) without reference to any amount in respect of a deposit accounting insurance policy.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending Acts and regulations. SOR/79-425, s. 1;
  • SOR/97-505, s. 1;
  • SOR/99-269, s. 5;
  • 2010, c. 25, s. 78.

 For greater certainty, any amount referred to or determined under section 1400 may be equal to, or less than, nil.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending regulations. SOR/99-269, s. 5.
  •  (1) Subject to subsections (2) and (3), for the purposes of applying paragraph 1401(1)(c) in respect of a life insurance policy issued before 2017 or an annuity contract, a modified net premium and an amount determined by paragraph 1401(1)(c) are to be computed

    • (a) in the case of a lapse-supported policy effected after 1990, based on rates of interest, mortality and policy lapse only, and

    • (b) in any other case, based on rates of interest and mortality only,

    using

    • (c) in respect of the modified net premiums and benefits (other than a benefit described in paragraph (d)) of a participating life insurance policy (other than an annuity contract) under the terms of which the policyholder is entitled to receive a specified amount in respect of the policy’s cash surrender value, the rates used by the insurer when the policy was issued in computing the cash surrender values of the policy;

    • (d) in respect of any benefit provided

      • (i) in lieu of a cash settlement on the termination or maturity of a policy, or

      • (ii) in satisfaction of a dividend on a policy,

    the rates used by the insurer in determining the amount of such benefit; and

    • (e) in respect of all or part of any other policy, the rates used by the insurer in determining the premiums for the policy.

  • (2) For the purposes of subsection (1), where a rate of mortality or other probability used by an insurer in determining the premium for a policy is not reasonable in the circumstances, the Minister on the advice of the Superintendent of Insurance for Canada may make such revision to the rate as is reasonable in the circumstances and the revised rate shall be deemed to have been used by the insurer in determining the premium.

  • (3) For the purposes of subsection (1), where the present value of the premiums for a policy as at the date of issue of the policy is less than the aggregate of

    • (a) the present value, at that date, of the benefits provided for by the policy, and

    • (b) the present value, at that date, of all outlays and expenses made or incurred by the insurer or outlays and expenses that the insurer reasonably estimates it will make or incur in respect of the policy (except outlays and expenses to maintain the policy after all premiums under the policy have been paid and for which explicit provision has not been made in calculating the premiums) and such part of any other outlays and expenses made or incurred by the insurer that may reasonably be regarded as applicable thereto,

    an increased rate of interest shall be determined by multiplying the rate of interest used in determining the premiums by a constant factor so that when the increased rate of interest is used,

    • (c) the present value of the premiums at the date of issue of the policy

    shall equal

    • (d) the aggregate of the present values of the benefits, outlays and expenses referred to in paragraphs (a) and (b),

    and the increased rate of interest shall be deemed to have been used by the insurer in determining the premiums for policy.

  • (4) For the purposes of subsection (3), a “present value” referred to in that subsection shall be computed by using the rates of mortality and other probabilities used by the insurer in determining its premiums, after mixing any revision required by subsection (2).

  • (5) For the purposes of subsection (1), where a record of the rate of interest or mortality used by an insurer in determining the premiums for a policy is not available,

    • (a) the insurer may, if the policy was issued before 1978, make a reasonable estimate of the rate; and

    • (b) the Minister, on the advice of the Superintendant of Insurance for Canada, may

      • (i) if the policy was issued before 1978 and the insurer has not made the estimate referred to in paragraph (a), or

      • (ii) if the policy was issued after 1977,

      make a reasonable estimate of the rate.

  • (6) Notwithstanding paragraph 1401(1)(c), a life insurer in computing its income for a taxation year may, in respect of any class of life insurance policies issued before its 1988 taxation year, other than policies referred to in paragraph 1401(1)(a) or (b), use a method of approximation to convert the reserve in respect of such policies reported by the insurer in its annual report to the relevant authority for the year to an amount that is a reasonable estimate of the amount that would otherwise be determined for such policies under paragraph 1401(1)(c), provided that that method of approximation is acceptable to the Minister on the advice of the relevant authority.

  • (7) For the purpose of subsection (1) and notwithstanding any other provision of this section, where

    • (a) an individual annuity contract was issued prior to 1969 by a life insurer, or

    • (b) a benefit was purchased prior to 1969 under a group annuity contract issued by a life insurer, and

    the contract

    • (c) is a policy in respect of which the provisions of paragraph 1401(1)(c) as it read in its application to the insurer’s 1977 taxation year applied,

    the rates of interest and mortality and by the insurer in computing its reserve for the policy under that paragraph for its 1977 taxation year shall be used by the insurer in respect of that policy.

  • (8) Subsections (9) and (10) apply to an insurer if

    • (a) in a taxation year of the insurer, there has been a disposition to the insurer by another person with whom the insurer was dealing at arm’s length in respect of which subsection 138(11.92) of the Act applied;

    • (b) as a result of the disposition, the insurer assumed obligations under life insurance policies (in this subsection and subsections (9) and (10) referred to as the “transferred policies”) in respect of which an amount may be claimed by the insurer as a reserve under paragraph 1401(1)(c) for the taxation year;

    • (c) the amount (referred to in this subsection and subsections (9) and (10) as the “reserve deficiency”) determined by the following formula is a positive amount:

      (A – B) – C

      where

      A
      is the total of all amounts received or receivable by the insurer from the other person in respect of the transferred policies,
      B
      is the total of all amounts paid or payable by the insurer to the other person in respect of commissions in respect of the amounts referred to in the description of A, and
      C
      is the total of the maximum amounts that may be claimed by the insurer as a reserve under 1401(1)(c) (determined without reference to this subsection) in respect of the transferred policies for the taxation year; and
    • (d) the reserve deficiency can reasonably be attributed to the fact that the rates of interest, mortality or policy lapse used by the issuer of the transferred policies in determining the cash surrender values or premiums under the transferred policies are no longer reasonable in the circumstances.

  • (9) If this subsection applies to an insurer in respect of transferred policies for which there was a reserve deficiency, then, for the purposes of subsection (1) and subject to subsection (10),

    • (a) the insurer may make such revisions to the rates of interest, mortality or policy lapse used by the issuer of the transferred policies to eliminate all or any part of the reserve deficiency; and

    • (b) the revised rates are deemed to have been used by the issuer of the transferred policies in determining the cash surrender value or premiums under the policies.

  • (10) If, under subsection (9), an insurer has revised the rates of interest, mortality or policy lapse used by the issuer of transferred policies, the Minister may, for the purposes of subsection (1) and paragraph (9)(b), make further revisions to the revised rates to the extent that the insurer’s revisions to those rates are not reasonable in the circumstances.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending Acts and regulations. SOR/79-425, s. 1;
  • SOR/80-419, s. 2;
  • SOR/80-618, s. 4(E);
  • SOR/90-661, s. 4;
  • SOR/94-415, s. 6;
  • SOR/94-686, ss. 14(F), 56(F);
  • 2013, c. 34, s. 386;
  • 2014, c. 39, s. 87.

DIVISION 4Life Insurance Policy Reserves

  •  (1) For the purpose of subparagraph 138(3)(a)(i) of the Act, there may be deducted, in computing a life insurer’s income from carrying on its life insurance business in Canada for a taxation year in respect of its life insurance policies in Canada, the amount the insurer claims, not exceeding

    • (a) the amount determined under subsection (3) in respect of the insurer for the year, where that amount is greater than nil; and

    • (b) nil, in any other case.

  • (2) For the purpose of paragraph 138(4)(b) of the Act, the amount prescribed in respect of an insurer for a taxation year, in respect of its life insurance policies in Canada, is

    • (a) the absolute value of the amount determined under subsection (3) in respect of the insurer for the year, where that amount is less than nil; and

    • (b) nil, in any other case.

  • (3) For the purposes of paragraphs (1)(a) and (2)(a), the amount determined under this subsection in respect of an insurer for a taxation year, in respect of its life insurance policies in Canada, is the amount, which may be positive or negative, determined by the formula

    A + B + C + D – M

    where

    A
    is the amount (except to the extent the amount is determined in respect of a claim, premium, dividend or refund in respect of which an amount is included in determining the value of B, C or D), in respect of the insurer’s life insurance policies in Canada, equal to the lesser of
    • (a) the total of the reported reserves of the insurer at the end of the year in respect of those policies, and

    • (b) the total of the policy liabilities of the insurer at the end of the year in respect of those policies;

    B
    is the amount, in respect of the insurer’s life insurance policies in Canada under which there may be claims incurred before the end of the year that have not been reported to the insurer before the end of the year, equal to 95% of the lesser of
    • (a) the total of the reported reserves of the insurer at the end of the year in respect of the possibility that there are such claims, and

    • (b) the total of the policy liabilities of the insurer at the end of the year in respect of the possibility that there are such claims;

    C
    is the total of all amounts each of which is the unearned portion at the end of the year of the premium paid by the policyholder for the policy, determined by apportioning the premium paid by the policyholder equally over the period to which that premium relates, where the policy is a group term life insurance policy that
    • (a) provides coverage for a period that does not exceed 12 months, and

    • (b) is a life insurance policy in Canada;

    D
    is the total of all amounts (other than an amount deductible under subparagraph 138(3)(a)(v) of the Act) each of which is the amount, which is the least of P, Q and R, in respect of a dividend, refund of premiums or refund of premium deposits provided for under the terms of a group life insurance policy that is a life insurance policy in Canada that will be
    • (a) used by the insurer to reduce or eliminate a future adverse claims experience under the policy,

    • (b) paid or unconditionally credited to the policyholder by the insurer, or

    • (c) applied in discharge, in whole or in part, of a liability of the policyholder to pay premiums to the insurer under the policy,

    where

    P
    is a reasonable amount as a reserve determined as at the end of the year in respect of the dividend, refund of premiums or refund of premium deposits provided for under the terms of the policy,
    Q
    is 25% of the amount of the premium under the terms of the policy for the 12-month period ending
    • (a) on the day the policy is terminated, if the policy is terminated in the year, and

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

    R
    is the amount of the reported reserve of the insurer at the end of the year in respect of the dividend, refund of premiums or refund of premium deposits provided for under the terms of the policy; and
    M
    is the total of all amounts determined in respect of a life insurance policy in Canada each of which is
    • (a) an amount payable in respect of a policy loan under the policy, or

    • (b) interest that has accrued to the insurer to the end of the year in respect of a policy loan under the policy.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending Acts and regulations.  SOR/79-425, s. 1;
  • SOR/80-419, s. 3;
  • SOR/83-865, s. 6;
  • SOR/84-948, s. 9;
  • SOR/88-165, ss. 9, 30(F);
  • SOR/90-661, s. 5;
  • SOR/92-51, s. 8;
  • SOR/93-564, s. 1;
  • SOR/94-415, s. 7;
  • SOR/94-686, ss. 55(F), 56(F), 79(F);
  • SOR/96-443, s. 2;
  • SOR/99-269, s. 6;
  • SOR/2002-123, ss. 3, 4;
  • 2009, c. 2, s. 100.
 
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