• (A) is

  • (I) an individual other than a trust,

  • (II) a trust described in paragraph 104(4)(a) of the Act (in this paragraph referred to as a “specified trust”),

  • (III) a trust that is a qualified disability trust (as defined in subsection 122(3) of the Act) for the taxation year in which the annuity is issued, or

  • (IV) if the annuity is issued before 2016, a trust that is a testamentary trust at the time the annuity is issued,

2. in the case of a qualified disability trust, for the life of an individual who is an electing beneficiary (as defined in subsection 122(3) of the Act) of the trust for the taxation year in which the annuity is issued,

3. in the case of a trust (other than a qualified disability trust or specified trust) where the annuity is issued before October 24, 2012, for the life of an individual who is entitled to receive income from the trust, and

4. in the case of a trust (other than a qualified disability trust or specified trust) where the annuity is issued after October 23, 2012, for the life of an individual who was entitled when the contract was first held to receive all of the trust’s income that is from an amount received by the trust on or before the individual’s death as a payment under the annuity,

• (III) if the holder is a qualified disability trust, an individual who is an electing beneficiary of the trust for the taxation year in which the annuity is issued, and

• (IV) if the holder is a trust (other than a qualified disability trust or specified trust) and the annuity is issued before 2016, the individual who was the youngest beneficiary under the trust when the contract was first held,

• (IV) if the holder is a trust, other than a specified trust, and the contract is first held after October 2011, on the earlier of

  1. the time at which the trust ceases to be a testamentary trust, and

  2. the death of the individual referred to in subclause (B)(II) or (C)(III) or (IV), as the case may be, in respect of the trust, and

• (b) assuming that the terms and conditions of the policy do not change from those in effect on the last policy anniversary of the policy at or before that time and, where necessary, making reasonable assumptions about all other factors (including, in the case of a participating life insurance policy within the meaning assigned by subsection 138(12) of the Act, the assumption that the amounts of dividends paid will be as shown in the dividend scale),

  • (i) if the policy is issued before 2017, it is reasonable to expect that the condition in paragraph (a) will be met on each policy anniversary of the policy on which the policy could remain in force after that time and before the endowment date of the exemption test policies issued in respect of the policy, and

  • (ii) if the policy is issued after 2016, it is reasonable to expect — without reference to any automatic adjustments under the policy that may be made after that time to ensure that the policy is an exempt policy and, where applicable, making projections using the most recent values that are used to calculate the accumulating fund in respect of the policy or in respect of each exemption test policy issued in respect of a coverage under the policy, as the case may be — that the condition in paragraph (a) will be met on the policy’s next policy anniversary;

• (3) For the purposes of this section and section 307,

  • (a) in the case of a life insurance policy issued before 2017 or at a particular time determined under subsection 148(11) of the Act, a separate exemption test policy is deemed, subject to subsection (7), to be issued in respect of the life insurance policy

    • (i) on the date of issue of the life insurance policy, and

    • (ii) on each policy anniversary (that ends before the particular time, if any, determined under subsection 148(11) of the Act in respect of the policy) of the life insurance policy on which

      • (A) the amount of the benefit on death under the life insurance policy

      exceeds

      • (B) 108% of the amount of the benefit on death under the life insurance policy on the later of the life insurance policy’s date of issue and the date of the life insurance policy’s preceding policy anniversary, if any; and

  • (b) in the case of a life insurance policy issued after 2016 (including, for greater certainty, at a particular time determined under subsection 148(11) of the Act in respect of the policy), a separate exemption test policy is deemed, subject to subsection (7), to be issued in respect of each coverage under the life insurance policy

    • (i) unless the particular time when the policy is issued is determined under subsection 148(11) of the Act and the coverage was issued before the particular time, on the date of

      • (A) issue of the life insurance policy, if the coverage is issued before the first policy anniversary of the life insurance policy,

      • (B) issue of the coverage, if the coverage is issued on a policy anniversary of the life insurance policy, or

      • (C) the life insurance policy’s preceding policy anniversary, if the coverage is issued on any date that is after the policy’s first policy anniversary and that is not a policy anniversary,

    • (ii) on each policy anniversary of the life insurance policy (except that, if a particular time when the policy is issued has been determined under subsection 148(11) of the Act, only on a policy anniversary that ends at or after the particular time) on which

      • (A) the amount of the benefit on death under the coverage on that policy anniversary

      exceeds

      • (B) 108% of the amount of the benefit on death under the coverage, on the later of the coverage’s date of issue and the date of the life insurance policy’s preceding policy anniversary (or, if there is no preceding policy anniversary, the coverage’s date of issue), and

    • (iii) on each policy anniversary of the life insurance policy (except that, if a particular time when the policy is issued has been determined under subsection 148(11) of the Act, only on a policy anniversary that ends at or after the particular time) — except to the extent that another exemption test policy has been issued on that date under this subparagraph in respect of a coverage under the life insurance policy — on which

      • (A) the amount by which the fund value benefit under the life insurance policy on that policy anniversary exceeds the fund value benefit under the life insurance policy on the life insurance policy’s preceding policy anniversary (or, if there is no preceding policy anniversary, the date of issue of the policy)

      exceeds

      • (B) the amount by which

        • (I) 8% of the amount of the benefit on death under the life insurance policy on the life insurance policy’s preceding policy anniversary (or, if there is no preceding policy anniversary, the date of issue of the policy)

        exceeds

        • (II) the total of all amounts each of which is, in respect of a coverage under the policy, the lesser of

          1. the amount by which the amount of the benefit on death under the coverage on that policy anniversary exceeds the amount of the benefit on death under the coverage on the later of the coverage’s date of issue and the date of the life insurance policy’s preceding policy anniversary (or, if there is no preceding policy anniversary, the coverage’s date of issue), and

          2. 8% of the amount of the benefit on death under the coverage on the later of the coverage’s date of issue and the date of the life insurance policy’s preceding policy anniversary (or, if there is no preceding policy anniversary, the coverage’s date of issue).

• (4) Subject to subsection (10), for the purpose of determining whether the condition in paragraph (1)(a) is met on a policy anniversary of a life insurance policy, each exemption test policy issued in respect of the life insurance policy, or in respect of a coverage under the life insurance policy, is deemed

  • (a) to have a benefit on death that is uniform throughout the term of the exemption test policy and that, subject to subsection (5), is equal to

    • (i) if the date on which the exemption test policy is issued is determined by subparagraph (3)(a)(i), the amount by which the amount on that policy anniversary of the benefit on death under the life insurance policy exceeds the total of all amounts each of which is the amount, if any, on that policy anniversary of the benefit on death under another exemption test policy issued on or before that policy anniversary in respect of the life insurance policy,

    • (ii) if the date on which the exemption test policy is issued is determined by subparagraph (3)(a)(ii), the amount of the excess referred to in that subparagraph on that date in respect of the life insurance policy,

    • (iii) if the date on which the exemption test policy is issued is determined by subparagraph (3)(b)(i), the amount determined by the formula

      A + B – C

      where

      A

      is the amount on that policy anniversary of the benefit on death under the coverage,

      B

      is

      • (A) if the benefit on death under the life insurance policy includes a fund value benefit on that policy anniversary, the portion of the fund value benefit on that policy anniversary that is equal to the lesser of

        • (I) the maximum amount of the fund value benefit that could be payable on that policy anniversary if no other coverage were offered under the life insurance policy and the life insurance policy were an exempt policy, and

        • (II) the amount by which the fund value benefit on that policy anniversary exceeds the total of all amounts each of which is the portion of the fund value benefit allocated to other coverages under the life insurance policy, and

      • (B) in any other case, nil, and

      C

      is the total of all amounts each of which is the amount, if any, on that policy anniversary of the benefit on death under another exemption test policy issued on or before that policy anniversary in respect of the coverage,

    • (iv) if the date on which the exemption test policy is issued is determined by subparagraph (3)(b)(ii), the amount of the excess referred to in that subparagraph on that date in respect of the coverage, and

    • (v) if the date on which the exemption test policy is issued is determined by subparagraph (3)(b)(iii), the lesser of

      • (A) the amount by which the amount determined under clause (3)(b)(iii)(A) exceeds the amount determined under clause (3)(b)(iii)(B) on that date in respect of the coverage, and

      • (B) the amount determined in respect of the coverage under subclause (A)(I) of the description of B in subparagraph (iii) on that date; and

  • (b) to pay the amount of its benefit on death on the earlier of

    • (i) if the life insurance policy

      • (A) is issued before 2017, the date of death of the individual whose life is insured under the life insurance policy, or

      • (B) is issued after 2016,

        • (I) if two or more lives are jointly insured under the coverage, the date at which the benefit would be payable as a result of the death of any of the lives, and

        • (II) in any other case, the date of death of the individual whose life is insured under the coverage, and

    • (ii) the exemption test policy’s endowment date.

• (5) Subject to subsection (10), for the purpose of determining the amount of a benefit on death under an exemption test policy,

  • (a) if the exemption test policy is issued in respect of a life insurance policy issued before 2017 and at any time the amount of a benefit on death under the life insurance policy is reduced, a particular amount that is equal to the reduction is to be applied at that time to reduce the amount of the benefit on death under each exemption test policy issued before that time in respect of the life insurance policy (other than the exemption test policy the date of issue of which is determined under subparagraph (3)(a)(i)) in the order in which the dates of their issuance are proximate to that time, by an amount equal to the lesser of

    • (i) the portion, if any, of the particular amount not applied to reduce the benefit on death under one or more other such exemption test policies, and

    • (ii) the amount, immediately before that time, of the benefit on death under the relevant exemption test policy; and

  • (b) if the exemption test policy is issued in respect of a coverage under a life insurance policy issued after 2016 and at any time there is a particular reduction in the amount of a benefit on death under the coverage, or the portion, if any, of the fund value benefit referred to in clause (A) of the description of B in subparagraph (4)(a)(iii) in respect of the coverage, the amount of the benefit on death under each exemption test policy issued before that time in respect of the coverage (other than the exemption test policy the date of issue of which is determined under subparagraph (3)(b)(i)) is reduced at that time by an amount equal to the least of

    • (i) the particular reduction,

    • (ii) the amount, immediately before that time, of the benefit on death under the relevant exemption test policy, and

    • (iii) the portion, if any, of the particular reduction not applied to reduce the benefit on death under one or more other such exemption test policies issued on or after the date of issue of the relevant exemption test policy.

• (6) Subsection (7) applies at any time in respect of a life insurance policy if

  • (a) that time is on its tenth or a later policy anniversary;

  • (b) the accumulating fund (computed without regard to any amount payable in respect of a policy loan) in respect of the policy at that time exceeds 250% of the accumulating fund (computed without regard to any amount payable in respect of a policy loan) in respect of the policy on its third preceding policy anniversary; and

  • (c) where that time is after 2016,

    • (i) the accumulating fund (computed without regard to any amount payable in respect of a policy loan) in respect of the policy at that time exceeds the total of all amounts each of which is

      • (A) if the policy is issued before 2017, 3/20 of the accumulating fund, at that time, in respect of an exemption test policy issued in respect of the policy, and

      • (B) if the policy is issued after 2016, 3/8 of the accumulating fund, at that time, in respect of an exemption test policy issued in respect of a coverage under the policy, and

    • (ii) subsection (7) did not apply on any of the policy’s six preceding policy anniversaries.

• (7) If this subsection applies at any time in respect of a life insurance policy, each exemption test policy issued before that time in respect of the life insurance policy is at and after that time deemed to be issued (except for purposes of this subsection, paragraph (4)(a) and subsection (5))

  • (a) on the later of

    • (i) the date of the third preceding policy anniversary described in paragraph (6)(b) in respect of the policy, and

    • (ii) the date on which it was deemed by subsection (3) to be issued (determined immediately before that time); and

  • (b) not at any other time.

• (8) A life insurance policy that would, in the absence of this subsection, cease (other than by reason of its conversion into an annuity contract) on a policy anniversary of the policy to be an exempt policy is deemed to be an exempt policy on that policy anniversary if

  • (a) had that policy anniversary occurred on the particular day that is 60 days after that policy anniversary, the policy would have been an exempt policy on the particular day; or

  • (b) the person whose life is insured under the policy dies on that policy anniversary or within 60 days after that policy anniversary.

• (9) A life insurance policy (other than an annuity contract or deposit administration fund policy) issued before December 2, 1982 is deemed to be an exempt policy at all times from the date of its issue until the first time after December 1, 1982 at which

  • (a) a prescribed premium is paid by a taxpayer in respect of an interest, last acquired before December 2, 1982, in the policy; or

  • (b) an interest in the policy is acquired by a taxpayer from the person who held the interest continuously since December 1, 1982.

• (10) If a particular time when a life insurance policy is issued has been determined under subsection 148(11) of the Act, in applying subsections (4) and (5) at or after the particular time to an exemption test policy issued before the particular time in respect of the policy,

  • (a) subparagraphs (4)(a)(iii) and (iv), and not subparagraph (4)(a)(i) or (ii), apply to the exemption test policy; and

  • (b) for greater certainty, paragraph (5)(b), and not paragraph (5)(a), applies to the exemption test policy.