Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.))

Insurance Corporations

Marginal note:Insurance corporations

• 138 (1) It is hereby declared that a corporation, whether or not it is a mutual corporation, that has, in a taxation year, been a party to insurance contracts or other arrangements or relationships of a particular class whereby it can reasonably be regarded as undertaking

  • (a) to insure other persons against loss, damage or expense of any kind, or

  • (b) to pay insurance moneys to other persons

    • (i) on the death of any person,

    • (ii) on the happening of an event or contingency dependent on human life,

    • (iii) for a term dependent on human life, or

    • (iv) at a fixed or determinable future time,

  whether or not such persons are members or shareholders of the corporation, shall, regardless of the form or legal effect of those contracts, arrangements or relationships, be deemed, for the purposes of this Act, to have been carrying on an insurance business of that class in the year for profit, and in any such case, for the purpose of computing the income of the corporation, the following rules apply:

  • (c) every amount received by the corporation under, in consideration of, in respect of or on account of such a contract, arrangement or relationship shall be deemed to have been received by it in the course of that business,

  • (d) the income shall, except as otherwise provided in this section, be computed in accordance with the rules applicable in computing income for the purposes of this Part,

  • (e) all income from property vested in the corporation shall be deemed to be income of the corporation, and

  • (f) all taxable capital gains and allowable capital losses from dispositions of property vested in the corporation shall be deemed to be taxable capital gains or allowable capital losses, as the case may be, of the corporation.

• Marginal note:Insurer’s income or loss

  (2) Notwithstanding any other provision of this Act,

  • (a) if a life insurer resident in Canada carries on an insurance business in Canada and in a country other than Canada in a taxation year, its income or loss for the year from carrying on an insurance business is the amount of its income or loss for the taxation year from carrying on the insurance business in Canada;

  • (b) if a life insurer resident in Canada carries on an insurance business in Canada and in a country other than Canada in a taxation year, for greater certainty,

    • (i) in computing the insurer’s income or loss for the taxation year from the insurance business carried on by it in Canada, no amount is to be included in respect of the insurer’s gross investment revenue for the taxation year derived from property used or held by it in the course of carrying on an insurance business that is not designated insurance property for the taxation year of the insurer, and

    • (ii) in computing the insurer’s taxable capital gains or allowable capital losses for the taxation year from dispositions of capital property (referred to in this subparagraph as “insurance business property”) that, at the time of the disposition, was used or held by the insurer in the course of carrying on an insurance business,

      • (A) there is to be included each taxable capital gain or allowable capital loss of the insurer for the taxation year from a disposition in the taxation year of an insurance business property that was a designated insurance property for the taxation year of the insurer, and

      • (B) there is not to be included any taxable capital gain or allowable capital loss of the insurer for the taxation year from a disposition in the taxation year of an insurance business property that was not a designated insurance property for the taxation year of the insurer;

  • (c) if a non-resident insurer carries on an insurance business in Canada in a taxation year, its income or loss for the taxation year from carrying on an insurance business is the amount of its income or loss for the taxation year from carrying on the insurance business in Canada; and

  • (d) if a non-resident insurer carries on an insurance business in Canada in a taxation year,

    • (i) in computing the non-resident insurer’s income or loss for the taxation year from the insurance business carried on by it in Canada, no amount is to be included in respect of the non-resident insurer’s gross investment revenue for the taxation year derived from property used or held by it in the course of carrying on an insurance business that is not designated insurance property for the taxation year of the non-resident insurer, and

    • (ii) in computing the non-resident insurer’s taxable capital gains or allowable capital losses for the taxation year from dispositions of capital property (referred to in this subparagraph as “insurance business property”) that, at the time of the disposition, was used or held by the non-resident insurer in the course of carrying on an insurance business,

      • (A) there is to be included each taxable capital gain or allowable capital loss of the non-resident insurer for the taxation year from a disposition in the taxation year of an insurance business property that was a designated insurance property for the taxation year of the non-resident insurer, and

      • (B) there is not to be included any taxable capital gain or allowable capital loss of the non-resident insurer for the taxation year from a disposition in the taxation year of an insurance business property that was not a designated insurance property for the taxation year of the non-resident insurer.

• Marginal note:Income — designated foreign insurance business

  (2.1) If a life insurer resident in Canada has a designated foreign insurance business in a taxation year,

  • (a) for the purposes of computing the life insurer’s income or loss from carrying on an insurance business in Canada for that taxation year, the life insurer’s insurance business carried on in Canada is deemed to include the insurance of the specified Canadian risks that are insured as part of the designated foreign insurance business;

  • (b) if, in the immediately preceding taxation year, the designated foreign insurance business was not a designated foreign insurance business, for the purposes of paragraph (4)(a), subsection (9), the definition designated insurance property in subsection (12) and paragraphs 12(1)(d) to (e), the life insurer is deemed to have carried on the business in Canada in that immediately preceding year and to have claimed the maximum amounts to which it would have been entitled under subparagraph (3)(a)(i) and paragraphs 20(1)(l) and (l.1) and 20(7)(c) in respect of those specified Canadian risks if that designated foreign insurance business had been a designated foreign insurance business in that immediately preceding year; and

  • (c) for the purposes of subparagraph (3)(a)(ii.1) and subsection 20(22),

    • (i) the life insurer is deemed to have carried on the business in Canada in that immediately preceding year, and

    • (ii) the amounts, if any, that would have been prescribed in respect of the insurer for the purposes of paragraphs (4)(b) and 12(1)(e.1) for that immediately preceding year in respect of the insurance policies in respect of those specified Canadian risks are deemed to have been included in computing its income for that year.

• Marginal note:Insurance swaps

  (2.2) For the purposes of this section, one or more risks insured by a life insurer resident in Canada, as part of an insurance business carried on in a country other than Canada, that would not be specified Canadian risks if this Act were read without reference to this subsection, are deemed to be specified Canadian risks if those risks would be deemed to be specified Canadian risks because of paragraph 95(2)(a.21) if the life insurer were a foreign affiliate of a taxpayer.

• Marginal note:Insurance swaps

  (2.3) Subsection (2.4) applies in respect of one or more agreements or arrangements if

  • (a) subsection (2.2) applies to deem one or more risks insured by a particular life insurer resident in Canada to be specified Canadian risks; and

  • (b) those agreements or arrangements are in respect of risks described in paragraph (a) and have been entered into by any of the following (in subsection (2.4), referred to as an “agreeing party”):

    • (i) the particular life insurer,

    • (ii) another life insurer resident in Canada that does not deal at arm’s length with the particular life insurer,

    • (iii) a partnership of which a life insurer described in subparagraph (i) or (ii) is a member,

    • (iv) a foreign affiliate of either the particular life insurer or a person that does not deal at arm’s length with the particular life insurer, and

    • (v) a partnership of which a foreign affiliate described in subparagraph (iv) is a member.

• Marginal note:Insurance swaps

  (2.4) If this subsection applies in respect of one or more agreements or arrangements,

  • (a) to the extent that activities performed in connection with those agreements or arrangements can reasonably be considered to be performed for the purpose of obtaining the result described in subparagraph 95(2)(a.21)(ii) (with any modifications that the circumstances require), those activities are deemed to be,

    • (i) if the agreeing party is a life insurer resident in Canada, or a partnership of which such a life insurer is a member, part of the life insurer’s insurance business carried on in Canada, and

    • (ii) if the agreeing party is a foreign affiliate of a taxpayer, or a partnership of which such an affiliate is a member, a separate business, other than an active business, carried on by the affiliate; and

  • (b) any income from those activities (including income that pertains to or is incident to those activities) is deemed to be,

    • (i) if the agreeing party is a life insurer resident in Canada, income from the life insurer’s insurance business carried on in Canada, and

    • (ii) if the agreeing party is a foreign affiliate of a taxpayer, income from the business, other than an active business.

• Marginal note:Ceding of Canadian risks

  (2.5) Any income of a life insurer resident in Canada for a taxation year, from its insurance business carried on in a country other than Canada, in respect of the ceding of specified Canadian risks that would, if the life insurer were a foreign affiliate of a taxpayer, be included in computing the life insurer’s income from a business, other than an active business, for the taxation year because of subparagraph 95(2)(a.2)(iii), is to be included in computing the life insurer’s income or loss for that taxation year from its insurance business carried on in Canada, except to the extent it is already included because of subsection (2.1), (2.2) or (2.4).

• Marginal note:Anti-avoidance

  (2.6) For the purposes of this section,

  • (a) a risk is deemed to be a specified Canadian risk that is insured as part of an insurance business carried on in Canada by a particular life insurer resident in Canada if

    • (i) the particular life insurer insured the risk as part of a transaction or series of transactions,

    • (ii) the risk would not be a specified Canadian risk if this Act were read without reference to this subsection, and

    • (iii) it can reasonably be concluded that one of the purposes of the transaction or series of transactions was to avoid

      • (A) having a designated foreign insurance business, or

      • (B) the application of any of subsections (2.1) to (2.5) to the risk; and

  • (b) if one or more agreements or arrangements in respect of the risk have been entered into by any of the persons or partnerships described in subparagraphs (2.3)(b)(i) to (v) (in this paragraph, referred to as an “agreeing party”),

    • (i) any activities performed in connection with those agreements or arrangements are deemed to be

      • (A) if the agreeing party is a life insurer resident in Canada, or a partnership of which such a life insurer is a member, part of the life insurer’s insurance business carried on in Canada, and

      • (B) if the agreeing party is a foreign affiliate of a taxpayer, or a partnership of which such an affiliate is a member, a separate business, other than an active business, carried on by the affiliate, and

    • (ii) any income from those activities (including income that pertains to or is incident to those activities) is deemed to be,

      • (A) if the agreeing party is a life insurer resident in Canada, income from the life insurer’s insurance business carried on in Canada, and

      • (B) if the agreeing party is a foreign affiliate of a taxpayer, income from the business, other than an active business.

• Marginal note:Deductions allowed in computing income

  (3) In computing a life insurer’s income for a taxation year from carrying on its life insurance business in Canada, there may be deducted

  • (a) such of the following amounts as are applicable:

    • (i) any amount that the insurer claims as a policy reserve for the year in respect of its groups of life insurance contracts in Canada at the end of the year, not exceeding the total of amounts that the insurer is allowed by regulation to deduct in respect of those groups,

    • (ii) [Repealed, 2022, c. 19, s. 26]

    • (ii.1) the amount included under paragraph 138(4)(b) in computing the insurer’s income for the taxation year preceding the year,

    • (iii) the amount determined by the following formula:

      A – B

      where

      A

      is the total of policy dividends (except the portion paid out of segregated funds) that became payable by the insurer after its 1968 taxation year and before the end of the year under its participating life insurance policies, and

      B

      is the total of amounts deductible under this subparagraph (including as determined under subsection (3.1) as it read in its application to the insurer’s last taxation year that began before November 2011) in computing its incomes for taxation years before the year, and

    • (iv) [Repealed, 2013, c. 34, s. 286]

    • (v) each amount (other than an amount credited under a participating life insurance policy) that would be deductible under section 140 in computing the insurer’s income for the year if the reference in that section to “an insurance business other than a life insurance business” were read as a reference to “a life insurance business in Canada”;

  • (b) the total of amounts each of which is a policy loan made by the insurer in the year and after 1977; and

  • (c) the amount of tax under Part XII.3 payable by the insurer in respect of its taxable Canadian life investment income for the year.

  • (d) [Repealed, 1995, c. 21, s. 57(2)]

  • (e) to (g) [Repealed, 2013, c. 34, s. 286]

• (3.1) [Repealed, 2013, c. 34, s. 286]

• Marginal note:Amounts included in computing income

  (4) In computing a life insurer’s income for a taxation year from carrying on its life insurance business in Canada, there shall be included

  • (a) each amount deducted under subparagraph (3)(a)(i) in computing the insurer’s income for the preceding taxation year;

  • (b) the amount prescribed in respect of the insurer for the year in respect of its groups of life insurance contracts in Canada at the end of the year; and

  • (c) the total of all amounts received by the insurer in the year in respect of the repayment of policy loans or in respect of interest on policy loans.

• Marginal note:Life insurance policy

  (4.01) For the purposes of subsections 138(3) and 138(4), a life insurance policy includes a benefit under a group life insurance policy or a group annuity contract.

• (4.1) to (4.3) [Repealed, 2013, c. 34, s. 286]

• Marginal note:Income inclusion

  (4.4) If, for a period of time in a taxation year, a life insurer

  • (a) owned land (other than land referred to in paragraph (c) or (d)) or an interest, or for civil law a right, therein that was not held primarily for the purpose of gaining or producing income from the land for the period,

  • (b) had an interest, or for civil law a right, in a building that was being constructed, renovated or altered,

  • (c) owned land subjacent to the building referred to in paragraph (b) or an interest, or for civil law a right, therein, or

  • (d) owned land immediately contiguous to the land referred to in paragraph (c) or an interest, or for civil law a right, therein that was used or was intended to be used for a parking area, driveway, yard, garden or other use necessary for the use or intended use of the building referred to in paragraph (b),

  there shall be included in computing the insurer’s income for the year, where the land, building, or interest or right, was designated insurance property of the insurer for the year, or property used or held by it in the year in the course of carrying on an insurance business in Canada, the total of all amounts each of which is the amount prescribed in respect of the insurer’s cost or capital cost, as the case may be, of the land, building, or interest or right, for the period, and the amount prescribed shall, at the end of the period, be included in computing

  • (e) where the land, or interest or right therein, is property described in paragraph (a), the cost to the insurer of the land, or of the interest or right therein, and

  • (f) where the land, building, or interest or right therein, is property described in paragraphs (b) to (d), the capital cost to the insurer of the interest or right in the building described in paragraph (b).

• Marginal note:Application

  (4.5) Where a life insurer transfers or lends property, directly or indirectly in any manner whatever, to a person or partnership (in this subsection referred to as the “transferee”) that is affiliated with the insurer or a person or partnership that does not deal at arm’s length with the insurer and

  • (a) that property,

  • (b) property substituted for that property, or

  • (c) property the acquisition of which was assisted by the transfer or loan of that property

  was property described in paragraph (4.4)(a), (b), (c) or (d) of the transferee for a period of time in a taxation year of the insurer, the following rules apply:

  • (d) subsection 138(4.4) shall apply to include an amount in the insurer’s income for the year on the assumption that the property was owned by the insurer for the period, was property described in paragraph (4.4)(a), (b), (c) or (d) of the insurer and was used or held by it in the year in the course of carrying on an insurance business in Canada, and

  • (e) an amount included in the insurer’s income for the year under subsection 138(4.4) by reason of the application of this subsection shall

    • (i) where subparagraph 138(4.5)(e)(ii) does not apply, be added by the insurer in computing the cost to it of shares of the capital stock of or an interest in the transferee at the end of the year, or

    • (ii) where the insurer and the transferee have jointly elected in prescribed form on or before the day that is the earliest of the days on or before which any taxpayer making the election is required to file a return pursuant to section 150 for the taxation year that includes the period, be added in computing

      • (A) where the property is land or an interest, or for civil law a right, therein of the transferee described in paragraph (4.4)(a), the cost to the transferee of the land, or of the interest or right therein, and

      • (B) where the property is land or a building, or an interest therein or for civil law a right therein, described in paragraphs (4.4)(b) to (d), the capital cost to the transferee of the interest or of the right in the building described in paragraph (4.4)(b).

• Marginal note:Completion

  (4.6) For the purposes of subsection 138(4.4), the construction, renovation or alteration of a building is completed at the earlier of the day on which the construction, renovation or alteration is actually completed and the day on which all or substantially all of the building is used for the purpose for which it was constructed, renovated or altered.

• Marginal note:Deductions not allowed

  (5) Notwithstanding any other provision of this Act,

  • (a) in the case of an insurer, no deduction may be made under paragraph 20(1)(l) in computing its income for a taxation year from an insurance business in Canada in respect of a premium or other consideration for a life insurance policy in Canada or an interest therein; and

  • (b) in the case of a non-resident insurer or a life insurer resident in Canada that carries on any of its insurance business in a country other than Canada, no deduction may be made under paragraph 20(1)(c) or 20(1)(d) in computing its income for a taxation year from carrying on an insurance business in Canada, except in respect of

    • (i) interest on borrowed money used to acquire designated insurance property for the year, or to acquire property for which designated insurance property for the year was substituted property, for the period in the year during which the designated insurance property was held by the insurer in respect of the business,

    • (ii) interest on amounts payable for designated insurance property for the year in respect of the business, or

    • (iii) interest on deposits received or other amounts held by the insurer that arose in connection with life insurance policies in Canada or with policies insuring Canadian risks.

    • (iv) [Repealed, 2001, c. 17, s. 133(2)]

• Marginal note:No deduction

  (5.1) No deduction shall be made under subsection 20(12) in computing the income of a life insurer resident in Canada in respect of foreign taxes attributable to its insurance business.

• (5.2) [Repealed, 1995, c. 21, s. 57(5)]

• Marginal note:Deduction for dividends from taxable corporations

  (6) In computing the taxable income of a life insurer for a taxation year, no deduction from the income of the insurer for the year may be made under section 112 but, except as otherwise provided by that section, there may be deducted from that income the total of taxable dividends (other than dividends on term preferred shares that are acquired in the ordinary course of the business carried on by the life insurer) included in computing the insurer’s income for the year and received by the insurer in the year from taxable Canadian corporations.

• (7) [Repealed, 1997, c. 25, s. 39(8)]

• Marginal note:No deduction for foreign tax

  (8) No deduction shall be made under section 126 from the tax payable under this Part for a taxation year by a life insurer resident in Canada in respect of such part of an income or profits tax as can reasonably be attributable to income from its insurance business.

• Marginal note:Computation of income

  (9) Where in a taxation year an insurer (other than an insurer resident in Canada that does not carry on a life insurance business) carries on an insurance business in Canada and in a country other than Canada, there shall be included in computing its income for the year from carrying on its insurance businesses in Canada the total of

  • (a) its gross investment revenue for the year from its designated insurance property for the year, and

  • (b) the amount prescribed in respect of the insurer for the year.

• Marginal note:Application of financial institution rules

  (10) Notwithstanding sections 142.3, 142.4, 142.5 and 142.51, where in a taxation year an insurer (other than an insurer resident in Canada that does not carry on a life insurance business) carries on an insurance business in Canada and in a country other than Canada, in computing its income for the year from carrying on an insurance business in Canada,

  • (a) sections 142.3, 142.5 and 142.51 apply only in respect of property that is designated insurance property for the year in respect of the business; and

  • (b) section 142.4 applies only in respect of the disposition of property that, for the taxation year in which the insurer disposed of it, was designated insurance property in respect of the business.

• (11) [Repealed, 1995, c. 21, s. 57(7)]

• Marginal note:Identical properties

  (11.1) For the purpose of section 47, any property of a life insurance corporation that would, but for this subsection, be identical to any other property of the corporation is deemed not to be identical to the other property unless both properties are

  • (a) designated insurance property of the insurer in respect of a life insurance business carried on in Canada; or

  • (b) designated insurance property of the insurer in respect of an insurance business in Canada other than a life insurance business.

• Marginal note:Computation of capital gain on pre-1969 depreciable property

  (11.2) For the purposes of computing the amount of a capital gain from the disposition of any depreciable property acquired by a life insurer before 1969, the capital cost of the property to the insurer shall be its capital cost determined without reference to paragraph 32(1)(a) of An Act to amend the Income Tax Act, chapter 44 of the Statutes of Canada, 1968-69, as it read in its application to the 1971 taxation year.

• Marginal note:Deemed disposition

  (11.3) Subject to subsection 138(11.31), where a property of a life insurer resident in Canada that carries on an insurance business in Canada and in a country other than Canada or of a non-resident insurer is

  • (a) designated insurance property of the insurer for a taxation year, was owned by the insurer at the end of the preceding taxation year and was not designated insurance property of the insurer for that preceding year, or

  • (b) not designated insurance property for a taxation year, was owned by the insurer at the end of the preceding taxation year and was designated insurance property of the insurer for that preceding year,

  the following rules apply:

  • (c) the insurer is deemed to have disposed of the property at the beginning of the year for proceeds of disposition equal to its fair market value at that time and to have reacquired the property immediately after that time at a cost equal to that fair market value,

  • (d) where paragraph (a) applies, any gain or loss arising from the disposition is deemed not to be a gain or loss from designated insurance property of the insurer in the year, and

  • (e) where paragraph (b) applies, any gain or loss arising from the disposition is deemed to be a gain or loss from designated insurance property of the insurer in the year.

• Marginal note:Exclusion from deemed disposition

  (11.31) Subsection 138(11.3) does not apply

  • (a) to deem a disposition in a taxation year of a property of an insurer where subsection 142.5(2) deemed the insurer to have disposed of the property in its preceding taxation year; nor

  • (b) for the purposes of paragraph 20(1)(l), the description of A and paragraph (b) of the description of F in the definition undepreciated capital cost in subsection 13(21) and the definition designated insurance property in subsection 138(12).

• Marginal note:Deduction of loss

  (11.4) Notwithstanding any other provision of this Act, where an insurer has a loss for a taxation year from the disposition, because of subsection 138(11.3), of a property other than a specified debt obligation (as defined in subsection 142.2(1)), and the loss would, but for this subsection, have been deductible in the year, the loss shall be deductible only in the taxation year in which the taxpayer disposes of the property otherwise than because of subsection 138(11.3).

• (11.41) [Repealed, 1995, c. 21, s. 57(12)]

• Marginal note:Transfer of insurance business by non-resident insurer

  (11.5) Where

  • (a) a non-resident insurer (in this subsection referred to as the “transferor”) has, at any time in a taxation year, ceased to carry on all or substantially all of an insurance business carried on by it in Canada in that year,

  • (b) the transferor has, at that time or within 60 days after that time, transferred all or substantially all of the property (in this subsection referred to as the “transferred property) that is owned by it at that time and that was designated insurance property in respect of the business for the taxation year that, because of paragraph (h), ended immediately before that time

    • (i) to a corporation (in this subsection referred to as the “transferee”) that is a qualified related corporation (within the meaning assigned by subsection 219(8)) of the transferor that began immediately after that time to carry on that insurance business in Canada, and

    • (ii) for consideration that includes shares of the capital stock of the transferee,

  • (c) the transferee has, at that time or within 60 days thereafter, assumed or reinsured all or substantially all of the obligations of the transferor that arose in the course of carrying on that insurance business in Canada, and

  • (d) the transferor and the transferee have jointly elected in prescribed form and in accordance with subsection 138(11.6),

  the following rules apply:

  • (e) subject to paragraph 138(11.5)(k.1), where the fair market value, at that time, of the consideration (other than shares of the capital stock of the transferee or a right to receive any such shares) received or receivable by the transferor for the transferred property does not exceed the total of the cost amounts to the transferor, at that time, of the transferred property, the proceeds of disposition of the transferor and the cost to the transferee of the transferred property shall be deemed to be the cost amount, at that time, to the transferor of the transferred property, and in any other case, the provisions of subsection 85(1) shall be applied in respect of the transfer,

  • (f) where the provisions of subsection 85(1) are not required to be applied in respect of the transfer, the cost to the transferor of any particular property (other than shares of the capital stock of the transferee or a right to receive any such shares) received or receivable by it as consideration for the transferred property shall be deemed to be the fair market value, at that time, of the particular property,

  • (g) where the provisions of subsection 85(1) are not required to be applied in respect of the transfer, the cost to the transferor of any shares of the capital stock of the transferee received or receivable by the transferor as consideration for the transferred property shall be deemed to be

    • (i) where the shares are preferred shares of any class of the capital stock of the transferee, the lesser of

      • (A) the fair market value of those shares immediately after the transfer of the transferred property, and

      • (B) the amount determined by the formula

        A × B/C

        where

        A

        is the amount, if any, by which the proceeds of disposition of the transferor of the transferred property determined under paragraph 138(11.5)(e) exceed the fair market value, at that time, of the consideration (other than shares of the capital stock of the transferee or a right to receive any such shares) received or receivable by the transferor for the transferred property,

        B

        is the fair market value, immediately after the transfer of the transferred property, of those preferred shares of that class, and

        C

        is the fair market value, immediately after the transfer of the transferred property, of all preferred shares of the capital stock of the transferee receivable by the transferor as consideration for the transferred property, and

    • (ii) where the shares are common shares of any class of the capital stock of the transferee, the amount determined by the formula

      A × B/C

      where

      A

      is the amount, if any, by which the proceeds of disposition of the transferor of the transferred property determined under paragraph 138(11.5)(e) exceed the total of the fair market value, at that time, of the consideration (other than shares of the capital stock of the transferee or a right to receive any such shares) received or receivable by the transferor for the transferred property and the cost to the transferor of all preferred shares of the capital stock of the transferee receivable by the transferor as consideration for the transferred property,

      B

      is the fair market value, immediately after the transfer of the transferred property, of those shares of that class, and

      C

      is the fair market value, immediately after the transfer of the transferred property, of all common shares of the capital stock of the transferee receivable by the transferor as consideration for the transferred property,

  • (h) for the purposes of this Act, the transferor and the transferee shall be deemed to have had taxation years ending immediately before that time and, for the purposes of determining the fiscal periods of the transferor and transferee after that time, they shall be deemed not to have established fiscal periods before that time,

  • (i) for the purpose of determining the amount of gross investment revenue required by subsection 138(9) to be included in computing the transferor’s income for the particular taxation year referred to in paragraph 138(11.5)(h) and its gains and losses from its designated insurance property for its subsequent taxation years, the transferor is deemed to have transferred the business referred to in paragraph 138(11.5)(a), the property referred to in paragraph 138(11.5)(b) and the obligations referred to in paragraph 138(11.5)(c) to the transferee on the last day of the particular year,

  • (j) for the purpose of determining the income of the transferor and the transferee for their taxation years following their taxation years referred to in paragraph (h), amounts deducted by the transferor as reserves under subparagraph (3)(a)(i) and paragraphs 20(1)(l) and (l.1) and 20(7)(c) of this Act and section 33 and paragraph 138(3)(c) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, in its taxation year referred to in paragraph (h) in respect of the transferred property referred to in paragraph (b) or the obligations referred to in paragraph (c) are deemed to have been deducted by the transferee, and not the transferor, for its taxation year referred to in paragraph (h),

  • (j.1) for the purpose of determining the income of the transferor and the transferee for their taxation years following their taxation years referred to in paragraph 138(11.5)(h), amounts included under paragraphs 138(4)(b) and 12(1)(e.1) in computing the transferor’s income for its taxation year referred to in paragraph 138(11.5)(h) in respect of the insurance policies of the business referred to in paragraph 138(11.5)(a) are deemed to have been included in computing the income of the transferee, and not of the transferor, for their taxation years referred to in paragraph 138(11.5)(h),

  • (k) for the purposes of this section, sections 12, 12.4, 20, 138.1, 140 and 142, paragraphs 142.4(4)(c) and (d), section 148 and Part XII.3, the transferee is, in its taxation years following its taxation year referred to in paragraph (h), deemed to be the same person as, and a continuation of, the transferor in respect of the business referred to in paragraph (a), the transferred property referred to in paragraph (b) and the obligations referred to in paragraph (c),

  • (k.1) except for the purpose of this subsection, where the provisions of subsection 85(1) are not required to be applied in respect of the transfer,

    • (i) the transferor shall be deemed not to have disposed of a transferred property that is a specified debt obligation (other than a mark-to-market property), and

    • (ii) the transferee shall be deemed, in respect of a transferred property that is a specified debt obligation (other than a mark-to-market property), to be the same person as, and a continuation of, the transferor,

    and for the purpose of this paragraph, mark-to-market property and specified debt obligation have the meanings assigned by subsection 142.2(1),

  • (k.2) for the purposes of subsections 112(5) to 112(5.2) and 112(5.4) and the definition mark-to-market property in subsection 142.2(1), the transferee shall be deemed, in respect of the transferred property, to be the same person as, and a continuation of, the transferor,

  • (l) for the purposes of this subsection and subsections (11.7) and (11.9), the fair market value of consideration received by the transferor from the transferee in respect of the assumption or reinsurance of a particular obligation referred to in paragraph (c) is deemed to be the total of the amounts deducted by the transferor as a reserve under subparagraph (3)(a)(i) and paragraph 20(7)(c) in its taxation year referred to in paragraph (h) in respect of the particular obligation, and

  • (m) for the purpose of computing the income of the transferor or the transferee for their taxation years following their taxation years referred to in paragraph 138(11.5)(h),

    • (i) an amount in respect of a reinsurance premium paid or payable by the transferor to the transferee in respect of the obligations referred to in paragraph 138(11.5)(c), or

    • (ii) an amount in respect of a reinsurance commission paid or payable by the transferee to the transferor in respect of the amount referred to in subparagraph 138(11.5)(m)(i)

    under a reinsurance arrangement undertaken to effect the transfer of the insurance business to which this subsection applied shall be included or deducted, as the case may be, only to the extent that may be reasonably regarded as necessary to determine the appropriate amount of income of both the transferor and the transferee.

• Marginal note:Time of election

  (11.6) Any election under subsection 138(11.5) shall be made on or before the day that is the earliest of the days on or before which any taxpayer making the election is required to file a return of income pursuant to section 150 for the taxation year in which the transactions to which the election relates occurred.

• Marginal note:Computation of paid-up capital

  (11.7) Where, after December 15, 1987, subsection 138(11.5) is applicable in respect of a transfer of property by a non-resident insurer to a qualified related corporation of the insurer and the provisions of subsection 85(1) were not required to be applied in respect of the transfer, the following rules apply:

  • (a) in computing the paid-up capital, at any time after the transfer, in respect of any particular class of shares of the capital stock of the qualified related corporation, there shall be deducted an amount determined by the formula

    (A - B) × C/A

    where

    A

    is the increase, if any, determined without reference to this subsection as it applies to the transfer, in the paid-up capital in respect of all the shares of the capital stock of the corporation as a result of the transfer,

    B

    is the amount, if any, by which the cost of the transferred property to the corporation, immediately after the transfer, exceeds the fair market value, immediately after the transfer, of any consideration (other than shares of the capital stock of the corporation) received or receivable by the insurer from the corporation for the property, and

    C

    is the increase, if any, determined without reference to this subsection as it applies to the transfer, in the paid-up capital in respect of the particular class of shares as a result of the acquisition by the corporation of the transferred property; and

  • (b) in computing the paid-up capital, at any time after December 15, 1987, in respect of any particular class of shares of the capital stock of the qualified related corporation, there shall be added an amount equal to the lesser of

    • (i) the amount, if any, by which

      • (A) the total of all amounts each of which is an amount deemed by subsection 84(3), 84(4) or 84(4.1) to be a dividend on shares of that class paid after December 15, 1987 and before that time by the corporation

      exceeds

      • (B) the total of such dividends that would have been determined under clause 138(11.7)(b)(i)(A) if this Act were read without reference to paragraph 138(11.7)(a), and

    • (ii) the total of all amounts each of which is an amount required by paragraph 138(11.7)(a) to be deducted in computing the paid-up capital in respect of that class of shares after December 15, 1987 and before that time.

• Marginal note:Rules on transfers of depreciable property

  (11.8) Where

  • (a) subsection 138(11.5) is applicable in respect of a transfer of depreciable property by a non-resident insurer to a qualified related corporation,

  • (b) the provisions of subsection 85(1) were not required to be applied in respect of the transfer, and

  • (c) the capital cost to the insurer of the depreciable property exceeds its proceeds of disposition therefor,

  for the purposes of sections 13 and 20 and any regulations made under paragraph 20(1)(a), the following rules apply:

  • (d) the capital cost of the depreciable property to the corporation shall be deemed to be the amount that was the capital cost thereof to the insurer, and

  • (e) the excess shall be deemed to have been allowed to the corporation in respect of the property under regulations made under paragraph 20(1)(a) in computing its income for taxation years ending before the transfer.

• Marginal note:Computation of contributed surplus

  (11.9) Where, after December 15, 1987, subsection 138(11.5) or 85(1) is applicable in respect of a transfer of property by a person or partnership to an insurance corporation resident in Canada and

  • (a) the total of

    • (i) the fair market value, immediately after the transfer, of any consideration (other than shares of the capital stock of the corporation) received or receivable by the person or partnership from the corporation for the transferred property,

    • (ii) the increase, if any, in the paid-up capital of all the shares of the capital stock of the corporation (determined without reference to subsection 138(11.7) or 85(2.1) as it applies in respect of the transfer) arising on the transfer, and

    • (iii) the increase, if any, in the contributed surplus of the corporation (determined without reference to this subsection as it applies in respect of the transfer) arising on the transfer

  exceeds

  • (b) the total of

    • (i) the total of all amounts each of which is an amount required to be deducted in computing the paid-up capital of a class of shares of the capital stock of the corporation under subsection 138(11.7) or 85(2.1), as the case may be, as it applies in respect of the transfer, and

    • (ii) the cost to the corporation of the transferred property,

  for the purposes of paragraph 84(1)(c.1) and subsections 219(5.2) and 219(5.3), the contributed surplus of the corporation arising on the transfer shall be deemed to be the amount, if any, by which the amount of the contributed surplus otherwise determined exceeds the amount, if any, by which the total determined under paragraph 138(11.9)(a) exceeds the total determined under paragraph 138(11.9)(b).

• Marginal note:Computation of income of non-resident insurer

  (11.91) Where, at any time in a particular taxation year,

  • (a) a non-resident insurer carries on an insurance business in Canada, and

  • (b) immediately before that time, the insurer was not carrying on an insurance business in Canada or ceased to be exempt from tax under this Part on any income from such business by reason of any Act of Parliament or anything approved, made or declared to have the force of law thereunder,

  for the purpose of computing the income of the insurer for the particular taxation year,

  • (c) the insurer shall be deemed to have had a taxation year ending immediately before the commencement of the particular taxation year,

  • (d) for the purposes of paragraph (4)(a), subsection (9), the definition designated insurance property in subsection (12) and paragraphs 12(1)(d), (d.1) and (e), the insurer is deemed to have carried on the business in Canada in that preceding year and to have claimed the maximum amounts to which it would have been entitled under subparagraph (3)(a)(i) and paragraphs 20(1)(l) and (l.1) and 20(7)(c) for that year,

  • (d.1) for the purposes of subsection 20(22) and subparagraph 138(3)(a)(ii.1),

    • (i) the insurer is deemed to have carried on the business referred to in paragraph 138(11.91)(a) in Canada in the preceding taxation year referred to in paragraph 138(11.91)(c), and

    • (ii) the amounts, if any, that would have been prescribed in respect of the insurer for the purposes of paragraphs 138(4)(b) and 12(1)(e.1) for that preceding year in respect of the insurance policies of that business are deemed to have been included in computing its income for that year, and

  • (e) the insurer is deemed to have disposed, immediately before the beginning of the particular taxation year, of each property owned by it at that time that is designated insurance property in respect of the business referred to in paragraph (a) for the particular taxation year, for proceeds of disposition equal to the fair market value at that time and to have reacquired, at the beginning of the particular taxation year, the property at a cost equal to that fair market value.

  • (f) [Repealed, 2013, c. 34, s. 286]

• Marginal note:Computation of income where insurance business is transferred

  (11.92) Where, at any time in a taxation year, an insurer (in this subsection referred to as the “vendor”) has disposed of

  • (a) all or substantially all of an insurance business carried on by it in Canada, or

  • (b) all or substantially all of a line of business of an insurance business carried on by it in Canada

  to a person (in this subsection referred to as the “purchaser”) and obligations in respect of the business or line of business, as the case may be, in respect of which a reserve may be claimed under subparagraph (3)(a)(i) or paragraph 20(7)(c) (in this subsection referred to as the “obligations”) were assumed by the purchaser, the following rules apply:

  • (c) for the purpose of determining the amount of the gross investment revenue required to be included in computing the income of the vendor and the purchaser under subsection 138(9) and the amount of the gains and losses of the vendor and the purchaser from designated insurance property for the year

    • (i) the vendor and the purchaser shall, in addition to their normal taxation years, be deemed to have had a taxation year ending immediately before that time, and

    • (ii) for the taxation years of the vendor and the purchaser following that time, the business or line of business, as the case may be, disposed of to, and the obligations assumed by, the purchaser shall be deemed to have been disposed of or assumed, as the case may be, on the last day of the taxation year referred to in subparagraph 138(11.92)(c)(i),

  • (d) for the purpose of computing the income of the vendor and the purchaser for taxation years ending after that time,

    • (i) an amount paid or payable by the vendor to the purchaser in respect of the obligations, or

    • (ii) an amount in respect of a commission paid or payable by the purchaser to the vendor in respect of the amount referred to in subparagraph 138(11.92)(d)(i)

    shall be deemed to have been paid or payable or received or receivable, as the case may be, by the vendor or the purchaser, as the case may be, in the course of carrying on the business or line of business, as the case may be, and

  • (e) where the vendor has disposed of all or substantially all of an insurance business referred to in paragraph 138(11.92)(a), the vendor shall, for the purposes of section 219, be deemed to have ceased to carry on that business at that time.

• Marginal note:Property acquired on default in payment

  (11.93) Where, at any time in a taxation year of an insurer, the beneficial ownership of property is acquired or reacquired by the insurer in consequence of the failure to pay all or any part of an amount (in this subsection referred to as the “insurer’s claim”) owing to the insurer at that time in respect of a bond, debenture, mortgage, hypothecary claim, agreement of sale or any other form of indebtedness owned by the insurer, the following rules apply to the insurer:

  • (a) section 79.1 does not apply in respect of the acquisition or reacquisition;

  • (b) the insurer shall be deemed to have acquired or reacquired, as the case may be, the property at an amount equal to the fair market value of the property, immediately before that time;

  • (c) the insurer shall be deemed to have disposed at that time of the portion of the indebtedness represented by the insurer’s claim for proceeds of disposition equal to that fair market value and, immediately after that time, to have reacquired that portion of the indebtedness at a cost of nil;

  • (d) the acquisition or reacquisition shall be deemed to have no effect on the form of the indebtedness; and

  • (e) in computing the insurer’s income for the year or a subsequent taxation year, no amount is deductible under paragraph 20(1)(l) in respect of the insurer’s claim.

• Marginal note:Transfer of insurance business by resident insurer

  (11.94) Where

  • (a) an insurer resident in Canada (in this subsection referred to as the “transferor”) has, at any time in a taxation year, ceased to carry on all or substantially all of an insurance business carried on by it in Canada in that year,

  • (b) the transferor has, at that time or within 60 days after that time,

    • (i) in the case of a transferor that is a life insurer and that carries on an insurance business in Canada and in a country other than Canada in the year, transferred all or substantially all of the property (in subsection (11.5) referred to as the “transferred property”) that is owned by it at that time and that was designated insurance property in respect of the business for the taxation year that, because of paragraph (11.5)(h), ended immediately before that time, or

    • (ii) in any other case, transferred all or substantially all of the property owned by it at that time and used by it in the year in, or held by it in the year in the course of, carrying on that insurance business in Canada in that year (in subsection (11.5) referred to as the “transferred property”)

    to a corporation resident in Canada (in this subsection referred to as the “transferee”) that is a qualified related corporation (within the meaning assigned by subsection 219(8)) of the transferor that, immediately after that time, began to carry on that insurance business in Canada for consideration that includes shares of the capital stock of the transferee,

  • (c) the transferee has, at that time or within 60 days thereafter, assumed or reinsured all or substantially all of the obligations of the transferor that arose in the course of carrying on that insurance business in Canada, and

  • (d) the transferor and the transferee have jointly elected in prescribed form and in accordance with subsection 138(11.6),

  paragraphs 138(11.5)(e) to 138(11.5)(m) and subsections 138(11.7) to 138(11.9) apply in respect of the transfer.

• Marginal note:Definitions

  (12) In this section,

  accumulated 1968 deficit

  accumulated 1968 deficit[Repealed, 1997, c. 25, s. 39(16)]

  amount payable

  amount payable, in respect of a policy loan at a particular time, means the amount of the policy loan and the interest thereon that is outstanding at that time; (montant payable)

  base year

  base year of an insurer means the insurer’s taxation year that immediately precedes its transition year; (année de base)

  Canada security

  Canada security[Repealed, 1995, c. 21, s. 57(15)]

  contractual service margin

  contractual service margin for a group of insurance contracts of an insurer, or a group of reinsurance contracts held by the insurer, at the end of a taxation year, means the greater of the positive or negative amount of the contractual service margin for the group

  • (a) that would be reported as at the end of the taxation year if the amount were determined without reference to amounts described in subparagraphs (a)(i) to (iii) of the definition liability for remaining coverage in this subsection, and

  • (b) that would be determined at the end of the taxation year in respect of the group in accordance with International Financial Reporting Standards using reasonable assumptions in the circumstances if the amount were determined without reference to amounts described in subparagraphs (a)(i) to (iii) of the definition liability for remaining coverage in this subsection; (marge sur services contractuels)

  cost

  cost[Repealed, 1995, c. 21, s. 57(15)]

  deposit accounting insurance policy

  deposit accounting insurance policy in respect of an insurer’s taxation year means an insurance policy of the insurer that, according to International Financial Reporting Standards, is not an insurance contract for that taxation year; (police d’assurance à comptabilité de dépôt)

  designated foreign insurance business

  designated foreign insurance business, of a life insurer resident in Canada in a taxation year, means an insurance business that is carried on by the life insurer in a country other than Canada in the year unless more than 90% of the gross premium revenue from the business for the year from the insurance of risks (net of reinsurance ceded) is in respect of the insurance of risks (other than specified Canadian risks) of persons with whom the life insurer deals at arm’s length; (entreprise d’assurance étrangère désignée)

  designated insurance property

  designated insurance property for a taxation year of an insurer (other than an insurer resident in Canada that at no time in the year carried on a life insurance business) that, at any time in the year, carried on an insurance business in Canada and in a country other than Canada, means property determined in accordance with prescribed rules except that, in its application to any taxation year, designated insurance property for the 1998 or a preceding taxation year means property that was, under this subsection as it read in its application to taxation years that ended in 1996, property used by it in the year in, or held by it in the year in the course of, carrying on an insurance business in Canada; (bien d’assurance désigné)

  excluded policy

  excluded policy in respect of an insurer’s base year means an insurance policy of the insurer that would be a deposit accounting insurance policy for the insurer’s base year if International Financial Reporting Standards applied for that base year; (police exclue)

  gross investment revenue

  gross investment revenue of an insurer for a taxation year means the amount determined by the formula

  A + B + C + D + E + F - G

  where

  A

  is the total of the following amounts included in its gross revenue for the year:

  • (a) taxable dividends, and

  • (b) amounts received or receivable as, on account of, in lieu of or in satisfaction of, interest, rentals or royalties, other than amounts in respect of debt obligations to which subsection 142.3(1) applies for the year,

  B

  is its income for the year from each trust of which it is a beneficiary,

  C

  is its income for the year from each partnership of which it is a member,

  D

  is the total of all amounts required by subsection 16(1) to be included in computing its income for the year,

  E

  is the total of

  • (a) all amounts required by paragraph 142.3(1)(a) to be included in computing its income for the year, and

  • (b) all amounts required by subsection 12(3) or 20(14) to be included in computing its income for the year except to the extent that those amounts are included in the computation of A,

  F

  is the amount determined by the formula

  V - W

  where

  V

  is the total of all amounts included under paragraph 56(1)(d) in computing its income for the year, and

  W

  is the total of all amounts deducted under paragraph 60(a) in computing its income for the year;

  and

  G

  is the total of all amounts each of which is

  • (a) an amount deemed by subparagraph 16(6)(a)(ii) to be paid by it in respect of the year as interest, or

  • (b) an amount deductible under paragraph 142.3(1)(b) in computing its income for the year; (revenus bruts de placements)

  group of insurance contracts

  group of insurance contracts of an insurer means a group of insurance contracts of the insurer, determined according to International Financial Reporting Standards, that is a group for the purposes of determining an amount of the insurer that is reported as at the end of the insurer’s taxation year and, for greater certainty, includes a group of insurance contracts that include reinsurance contracts under which the insurer has assumed reinsurance risk; (groupe de contrats d’assurance)

  group of life insurance contracts

  group of life insurance contracts of an insurer means a group of life insurance contracts of the insurer, determined according to International Financial Reporting Standards, that is a group for the purposes of determining an amount of the insurer that is reported as at the end of the insurer’s taxation year and, for greater certainty, includes a group of life insurance contracts that include reinsurance contracts under which the insurer has assumed reinsurance risk; (groupe de contrats d’assurance-vie)

  group of life insurance contracts in Canada

  group of life insurance contracts in Canada of an insurer means a group of life insurance contracts of the insurer that includes only life insurance contracts issued or effected by the insurer on the life of a person resident in Canada at the time the contract was issued or effected; (groupe de contrats d’assurance-vie au Canada)

  group of reinsurance contracts

  group of reinsurance contracts held by an insurer means a group of reinsurance insurance contracts held by the insurer, determined according to International Financial Reporting Standards, that is a group for the purposes of determining an amount of the insurer that is reported as at the end of the insurer’s taxation year; (groupe de contrats de réassurance)

  group of segregated fund policies

  group of segregated fund policies of an insurer means a group of insurance contracts of the insurer that includes only segregated fund policies (within the meaning assigned by paragraph 138.1(1)(a)); (groupe de polices à fonds réservé)

  insurance

  insurance, of a risk, includes the reinsurance of the risk; (assurance)

  interest

  interest, in relation to a policy loan, means the amount in respect of the policy loan that is required to be paid under the terms and conditions of the policy in order to maintain the policyholder’s interest in the policy; (intérêt)

  liability for incurred claims

  liability for incurred claims, for a group of insurance contracts of an insurer at the end of a taxation year, means the lesser of the positive or negative amount of the liability for incurred claims for the group

  • (a) that would be reported as at the end of the taxation year if the amount were determined without reference to amounts described in subparagraphs (a)(i) to (iii) of the definition liability for remaining coverage in this subsection, and

  • (b) that would be determined at the end of the taxation year in accordance with International Financial Reporting Standards using reasonable assumptions in the circumstances if the amount were determined without reference to amounts described in subparagraphs (a)(i) to (iii) of the definition liability for remaining coverage in this subsection; (passif au titre des sinistres survenus)

  liability for remaining coverage

  liability for remaining coverage, for a group of insurance contracts of an insurer at the end of a taxation year, means the lesser of the positive or negative amount of the liability for remaining coverage for the group

  • (a) that would be reported as at the end of the taxation year if the amount were determined without reference to

    • (i) projected

      • (A) income and capital taxes (other than the tax payable under Part XII.3),

      • (B) taxes on premiums that are not deductible under Part I,

      • (C) amounts not deductible after the taxation year in computing income under Part I, and

      • (D) cash flows in respect of funds withheld arrangements,

    • (ii) amounts payable that are deductible for the taxation year, or a previous taxation year, in computing income under Part I, and

    • (iii) amounts receivable to the extent they have been included for the taxation year, or a previous taxation year, in computing income under Part I, and

  • (b) that would be determined at the end of the taxation year in accordance with International Financial Reporting Standards using reasonable assumptions in the circumstances if the amount were determined without reference to amounts described in subparagraphs (a)(i) to (iii); (passif au titre de la couverture restante)

  life insurance policy

  life insurance policy includes an annuity contract and a contract all or any part of the insurer’s reserves for which vary in amount depending on the fair market value of a specified group of assets; (police d’assurance-vie)

  life insurance policy in Canada

  life insurance policy in Canada means a life insurance policy issued or effected by an insurer on the life of a person resident in Canada at the time the policy was issued or effected; (police d’assurance-vie au Canada)

  maximum tax actuarial reserve

  maximum tax actuarial reserve for a particular class of life insurance policy for a taxation year of a life insurer means, except as otherwise expressly prescribed, the maximum amount allowable under subparagraph 138(3)(a)(i) as a policy reserve for the year in respect of policies of that class; (provision actuarielle maximale aux fins d’impôt)

  1975 branch accounting election deficiency

  1975 branch accounting election deficiency[Repealed, 2013, c. 34, s. 286]

  1975-76 excess additional group term reserve

  1975-76 excess additional group term reserve[Repealed, 2013, c. 34, s. 286]

  1975-76 excess capital cost allowance

  1975-76 excess capital cost allowance[Repealed, 2013, c. 34, s. 286]

  1975-76 excess investment reserve

  1975-76 excess investment reserve[Repealed, 2013, c. 34, s. 286]

  1975-76 excess policy dividend deduction

  1975-76 excess policy dividend deduction[Repealed, 2013, c. 34, s. 286]

  1975-76 excess policy dividend reserve

  1975-76 excess policy dividend reserve[Repealed, 2013, c. 34, s. 286]

  1975-76 excess policy reserves

  1975-76 excess policy reserves[Repealed, 2013, c. 34, s. 286]

  non-segregated property

  non-segregated property of an insurer means its property other than property included in a segregated fund; (biens non réservés)

  participating life insurance policy

  participating life insurance policy means a life insurance policy under which the policyholder is entitled to share (other than by way of an experience rating refund) in the profits of the insurer other than profits in respect of property in a segregated fund; (police d’assurance-vie avec participation)

  policyholders’ liabilities

  policyholders’ liabilities, of an insurer as at the end of a taxation year, means the amount reported as policyholders’ liabilities as at the end of the year; (obligation envers les titulaires de polices)

  policy loan

  policy loan means an amount advanced at a particular time by an insurer to a policyholder in accordance with the terms and conditions of a life insurance policy in Canada; (avance sur police)

  property used by it in the year in, or held by it in the year in the course of

  property used by it in the year in, or held by it in the year in the course of[Repealed, 1997, c. 25, s. 39(16)]

  qualified related corporation

  qualified related corporation of a non-resident insurer has the meaning assigned by subsection 219(8); (société liée admissible)

  reinsurance contract held amount

  reinsurance contract held amount, for a group of reinsurance contracts held by an insurer at the end of a taxation year, means the lesser of the positive or negative amount of the reinsurance contract held asset for the group

  • (a) that would be reported as at the end of the taxation year if the amount were determined without reference to amounts described in subparagraphs (a)(i) to (iii) of the definition liability for remaining coverage in this subsection, and

  • (b) that would be determined at the end of the taxation year in accordance with International Financial Reporting Standards using reasonable assumptions in the circumstances if the amount were determined without reference to amounts described in subparagraphs (a)(i) to (iii) of the definition liability for remaining coverage in this subsection; (montant au titre des contrats de réassurance détenus)

  relevant authority

  relevant authority of an insurer means

  • (a) the Superintendent of Financial Institutions, if the insurer is required by law to report to the Superintendent of Financial Institutions, and

  • (b) in any other case, the Superintendent of Insurance or other similar officer or authority of the province under whose laws the insurer is incorporated; (autorité compétente)

  reserve transition amount

  reserve transition amount of an insurer, in respect of an insurance business carried on by it in its transition year, means the positive or negative amount determined by the formula

  A + B − C − D − E − F + G + H

  where

  A

  is the maximum amount that the insurer would be permitted to claim under subparagraph (3)(a)(i) for its base year in respect of a policy reserve for its groups of life insurance contracts in Canada at the end of the base year if

  • (a) the International Financial Reporting Standards that applied to the insurer in valuing its assets and liabilities for its transition year had applied to it for its base year, and

  • (b) sections 1404 and 1406 of the Income Tax Regulations were read in respect of the insurer’s base year as they read in respect of its transition year,

  B

  is the maximum amount that the insurer would be permitted to claim under paragraph 20(7)(c) for its base year in respect of a policy reserve for its groups of insurance contracts at the end of the base year if

  • (a) the International Financial Reporting Standards that applied to the insurer in valuing its assets and liabilities for its transition year had applied to it for its base year, and

  • (b) sections 1400 and 1402 of the Income Tax Regulations were read in respect of the insurer’s base year as they read in respect of its transition year,

  C

  is the maximum amount that the insurer is permitted to claim under subparagraphs (3)(a)(i) and (ii) (as they read in their application to taxation years that begin before 2023) as a policy reserve for its base year,

  D

  is the maximum amount that the insurer is permitted to claim under paragraph 20(7)(c) as a policy reserve for its base year,

  E

  is the amount that would be included under paragraph (4)(b) in computing the insurer’s income for its base year in respect of its groups of life insurance contracts in Canada at the end of the base year if

  • (a) the International Financial Reporting Standards that applied to the insurer in valuing its assets and liabilities for its transition year had applied to it for its base year, and

  • (b) sections 1404 and 1406 of the Income Tax Regulations were read in respect of the insurer’s base year as they read in respect of its transition year,

  F

  is the amount that would be included under paragraph 12(1)(e.1) in computing the insurer’s income for its base year if

  • (a) the International Financial Reporting Standards that applied to the insurer in valuing its assets and liabilities for its transition year had applied to it for its base year, and

  • (b) sections 1400 and 1402 of the Income Tax Regulations were read in respect of the insurer’s base year as they read in respect of its transition year,

  G

  is the amount included under paragraph (4)(b) (as it read in its application to taxation years that begin before 2023) in computing the insurer’s income for its base year in respect of its life insurance policies, and

  H

  is the amount included under paragraph 12(1)(e.1) in computing the insurer’s income for its base year; (montant transitoire)

  segregated fund

  segregated fund has the meaning given that expression in subsection 138.1(1); (fonds réservé)

  specified Canadian risk

  specified Canadian risk has the same meaning as in paragraph 95(2)(a.23); (risques canadiens déterminés)

  surplus funds derived from operations

  surplus funds derived from operations of an insurer as of the end of a particular taxation year means the amount determined by the formula

  (A + B + C) – (D + E + F + G)

  where

  A

  is the total of the insurer’s income for each taxation year in the period beginning with its 1969 taxation year and ending with the particular year from all insurance businesses carried on by it,

  B

  is the total of all amounts each of which is a portion of a non-capital loss that was deemed by subsection 111(7.1) as it read in its application to the 1976 taxation year to have been deductible in computing the insurer’s income for a taxation year that ended before 1977,

  C

  is the total of all profits or gains made by the insurer in the period in respect of non-segregated property of the insurer disposed of by it that was used by it in, or held by it in the course of, carrying on an insurance business in Canada, except to the extent that those profits or gains have been or are included in computing the insurer’s income or loss, if any, for any taxation year in the period from carrying on an insurance business,

  D

  is the total of its loss, if any, for each taxation year in the period from all insurance businesses carried on by it,

  E

  is the total of all losses sustained by the insurer in the period in respect of non-segregated property disposed of by it that was used by it in, or held by it in the course of, carrying on an insurance business in Canada, except to the extent that those losses have been or are included in computing the insurer’s income or loss, if any, for any taxation year in the period from carrying on an insurance business,

  F

  is the total of

  • (a) all taxes payable under this Part by the insurer, and all income taxes payable by it under the laws of each province, for each taxation year in the period, except such portion thereof as would not have been payable by it if subsection 138(7) had not been enacted, and

  • (b) all taxes payable under Parts I.3 and VI by the insurer for each taxation year in the period, and

  G

  is the total of all gifts made in the period by the insurer to a qualified donee; (fonds excédentaire résultant de l’activité)

  transition year

  transition year of an insurer means the insurer’s first taxation year that begins after 2022. (année transitoire)

• Marginal note:Assets and liabilities

  (12.1) For greater certainty, in determining the amount of

  • (a) the contractual service margin, liability for incurred claims and liability for remaining coverage for a group of insurance contracts of an insurer, the amount is

    • (i) a positive amount if the amount is reported as a liability, and

    • (ii) a negative amount if the amount is reported as an asset; and

  • (b) the contractual service margin and reinsurance contract held amount for a group of reinsurance contracts held by an insurer, the amount is

    • (i) a positive amount if the amount is reported as an asset, and

    • (ii) a negative amount if the amount is reported as a liability.

• Marginal note:IFRS reference

  (12.2) Except as otherwise provided, references to International Financial Reporting Standards in this section refer to the International Financial Reporting Standards adopted by the Accounting Standards Board and effective for years that begin on or after January 1, 2023.

• Marginal note:Amount reported

  (12.3) A reference in subsections (12) and 138.1(1) of this Act and Parts XIV, XXIV and LXXXVI of the Income Tax Regulations to an amount that is reported, or that would be reported, of an insurer as at the end of a taxation year means

  • (a) if the insurer is the Canada Mortgage and Housing Corporation or a foreign affiliate of a taxpayer resident in Canada, an amount that is reported, or that would be reported, in the insurer’s financial statements for the year if those statements were prepared in accordance with International Financial Reporting Standards;

  • (b) if paragraph (a) does not apply and reporting by the insurer to the insurer’s relevant authority is required at the end of the year, an amount that is reported, or that would be reported, in the insurer’s non-consolidated balance sheet for the year accepted by the insurer’s relevant authority;

  • (c) if paragraphs (a) and (b) do not apply and the insurer is, throughout the year, subject to the supervision of its relevant authority, an amount that is reported, or that would be reported, in a non-consolidated balance sheet for the year that is prepared in a manner consistent with the requirements that would have applied had reporting to the insurer’s relevant authority been required at the end of the year; and

  • (d) in any other case, nil.

• Variation in tax basis and amortized cost

  (13) Where

  • (a) in a taxation year that ended after 1968 and before 1978 an insurer carried on a life insurance business in Canada and an insurance business in a country other than Canada,

  • (b) the insurer did not make an election in respect of the year under subsection 138(9) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, as it applied to that year, and

  • (c) the ratio of the value for the year of the insurer’s specified Canadian assets to its Canadian investment fund for the year exceeded one,

  each of the amounts included or deducted as follows in respect of the year shall be multiplied by the ratio referred to in paragraph 138(13)(c):

  • (d) under paragraph (c), (d), (k) or (l) of the definition tax basis in subsection 142.4(1) in determining the tax basis of a debt obligation to the insurer, or

  • (e) under paragraph (c), (d), (f) or (h) of the definition amortized cost in subsection 248(1) in determining the amortized cost of a debt obligation to the insurer.

• Marginal note:Meaning of certain expressions

  (14) For the purposes of subsection 138(13), the expressions Canadian investment fund for a taxation year, specified Canadian assets and value for the taxation year have the meanings prescribed therefor.

• Marginal note:Definition not to apply

  (15) In this section, in construing the meaning of the expression group term insurance policy, the definition group term life insurance policy in subsection 248(1) does not apply.

• Marginal note:Transition year income inclusion

  (16) There shall be included in computing an insurer’s income for its transition year from an insurance business carried on by it in the transition year the positive amount, if any, of the insurer’s reserve transition amount in respect of that insurance business.

• Marginal note:Transition year income deduction

  (17) There shall be deducted in computing an insurer’s income for its transition year from an insurance business carried on by it in the transition year the absolute value of the negative amount, if any, of the insurer’s reserve transition amount in respect of that insurance business.

• Marginal note:IFRS transition — reversals

  (17.1) In applying subsections (18) and (19) to an insurer for a taxation year of the insurer in respect of International Financial Reporting Standards,

  • (a) the reference to “policy reserve” in the description of C in the definition reserve transition amount in subsection (12) is to be read as a reference to “policy reserve determined without reference to the insurer’s excluded policies”;

  • (b) the description of D in the definition reserve transition amount in subsection (12) is to be read as follows:

    D

    is the amount determined by the formula

    D.1 − D.2

    where

    D.1

    is the maximum amount that the insurer is permitted to claim under paragraph 20(7)(c) as a policy reserve determined without reference to the insurer’s excluded policies, and

    D.2

    is the amount of policy acquisition costs of the insurer that is not deductible, but in the absence of subsection 18(9.02) (as it read in the base year) would have been deductible, in the base year or a preceding taxation year;

  • (c) the reference to “life insurance policies” in the description of G in the definition reserve transition amount in subsection (12) is to be read as a reference to “life insurance policies other than excluded policies”; and

  • (d) the amount included in the description of H in the definition reserve transition amount in subsection (12) is to be determined without reference to excluded policies.

• Marginal note:Transition year income inclusion reversal

  (18) If an amount has been included under subsection (16) in computing an insurer’s income for its transition year from an insurance business carried on by it, there shall be deducted in computing the insurer’s income, for each particular taxation year of the insurer that ends after the beginning of the transition year, from that insurance business, the amount determined by the formula

  A × B/1825

  where

  A

  is the amount included under subsection (16) in computing the insurer’s income for the transition year from that insurance business; and

  B

  is the number of days in the particular taxation year that are before the day that is 1825 days after the first day of the transition year.

• Marginal note:Transition year income deduction reversal

  (19) If an amount has been deducted under subsection (17) in computing an insurer’s income for its transition year from an insurance business carried on by it, there shall be included in computing the insurer’s income, for each particular taxation year of the insurer that ends after the beginning of the transition year, from that insurance business, the amount determined by the formula

  A × B/1825

  where

  A

  is the amount deducted under subsection (17) in computing the insurer’s income for the transition year from that insurance business; and

  B

  is the number of days in the particular taxation year that are before the day that is 1825 days after the first day of the transition year.

• Marginal note:Winding-up

  (20) If an insurer has, in a winding-up to which subsection 88(1) has applied, been wound-up into another corporation (referred to in this subsection as the “parent”), and immediately after the winding-up the parent carries on an insurance business, in applying subsections (18) and (19) in computing the income of the insurer and of the parent for particular taxation years that end on or after the first day (referred to in this subsection as the “start day”) on which assets of the insurer were distributed to the parent on the winding-up,

  • (a) the parent is, on and after the start day, deemed to be the same corporation as and a continuation of the insurer in respect of

    • (i) any amount included under subsection (16) or deducted under subsection (17) in computing the insurer’s income from an insurance business for its transition year,

    • (ii) any amount deducted under subsection (18) or included under subsection (19) in computing the insurer’s income from an insurance business for a taxation year of the insurer that begins before the start day, and

    • (iii) any amount that would — in the absence of this subsection and if the insurer existed and carried on an insurance business on each day that is the start day or a subsequent day and on which the parent carries on an insurance business — be required to be deducted or included, in respect of any of those days, under subsection (18) or (19) in computing the insurer’s income from an insurance business; and

  • (b) the insurer is, in respect of each of its particular taxation years, to determine the value for B in the formulas in subsections (18) and (19) without reference to the start day and days after the start day.

• Marginal note:Amalgamations

  (21) If there is an amalgamation (within the meaning assigned by subsection 87(1)) of an insurer with one or more other corporations to form one corporation (referred to in this subsection as the “new corporation”), and immediately after the amalgamation the new corporation carries on an insurance business, in applying subsections (18) and (19) in computing the income of the new corporation for particular taxation years of the new corporation that begin on or after the day on which the amalgamation occurred, the new corporation is, on and after that day, deemed to be the same corporation as and a continuation of the insurer in respect of

  • (a) any amount included under subsection (16) or deducted under subsection (17) in computing the insurer’s income from an insurance business for its transition year;

  • (b) any amount deducted under subsection (18) or included under subsection (19) in computing the insurer’s income from an insurance business for a taxation year that begins before the day on which the amalgamation occurred; and

  • (c) any amount that would — in the absence of this subsection and if the insurer existed and carried on an insurance business on each day that is the day on which the amalgamation occurred or a subsequent day and on which the new corporation carries on an insurance business — be required to be deducted or included, in respect of any of those days, under subsection (18) or (19) in computing the insurer’s income from an insurance business.

• Marginal note:Application of subsection (23)

  (22) Subsection (23) applies if, at any time, an insurer (referred to in this subsection and subsection (23) as the “transferor”) transfers, to a corporation (referred to in this subsection and subsection (23) as the “transferee”) that is related to the transferor, property in respect of an insurance business carried on by the transferor (referred to in this subsection and subsection (23) as the “transferred business”) and

  • (a) subsection 138(11.5) or (11.94) applies to the transfer; or

  • (b) subsection 85(1) applies to the transfer, the transfer includes all or substantially all of the property and liabilities of the transferred business and, immediately after the transfer, the transferee carries on an insurance business.

• Marginal note:Transfer of life insurance business

  (23) If this subsection applies in respect of the transfer, at any time, of property

  • (a) the transferee is, at and after that time, deemed to be the same corporation as and a continuation of the transferor in respect of

    • (i) any amount included under subsection (16) or deducted under subsection (17) in computing the transferor’s income for its transition year that can reasonably be attributed to the transferred business,

    • (ii) any amount deducted under subsection (18) or included under subsection (19) in computing the transferor’s income for a taxation year of the transferor that begins before that time that can reasonably be attributed to the transferred business, and

    • (iii) any amount that would — in the absence of this subsection and if the transferor existed and carried on an insurance business on each day that includes that time or is a subsequent day and on which the transferee carries on an insurance business — be required to be deducted or included, in respect of any of those days, under subsection (18) or (19) in computing the transferor’s income that can reasonably be attributed to the transferred business; and

  • (b) in determining, in respect of the day that includes that time or any subsequent day, any amount that is required under subsection (18) or (19) to be deducted or included in computing the transferor’s income for each particular taxation year from the transferred business, the description of A in the formulas in those subsections is deemed to be nil.

• Marginal note:Ceasing to carry on business

  (24) If at any time an insurer ceases to carry on all or substantially all of an insurance business (referred to in this subsection as the “discontinued business”), and none of subsections (20) to (22) apply,

  • (a) there shall be deducted, in computing the insurer’s income from the discontinued business for the insurer’s taxation year that includes the time that is immediately before that time, the amount determined by the formula

    A − B

    where

    A

    is the amount included under subsection (16) in computing the insurer’s income from the discontinued business for its transition year, and

    B

    is the total of all amounts each of which is an amount deducted under subsection (18) in computing the insurer’s income from the discontinued business for a taxation year that began before that time; and

  • (b) there shall be included, in computing the insurer’s income from the discontinued business for the insurer’s taxation year that includes the time that is immediately before that time, the amount determined by the formula

    C − D

    where

    C

    is the amount deducted under subsection (17) in computing the insurer’s income from the discontinued business for its transition year, and

    D

    is the total of all amounts each of which is an amount included under subsection (19) in computing the insurer’s income from the discontinued business for a taxation year that began before that time.

• Marginal note:Ceasing to exist

  (25) If at any time an insurer that carried on an insurance business ceases to exist (otherwise than as a result of a winding-up or amalgamation described in subsection (20) or (21)), for the purposes of subsection (24), the insurer is deemed to have ceased to carry on the insurance business at the earlier of

  • (a) the time (determined without reference to this subsection) at which the insurer ceased to carry on the insurance business, and

  • (b) the time that is immediately before the end of the last taxation year of the insurer that ended at or before the time at which the insurer ceased to exist.

• (26) [Repealed, 2022, c. 19, s. 26]