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

Income from Participating Life Insurance Businesses

309.1 For the purpose of subparagraph 309(1)(e)(i), in computing a life insurer’s income for a taxation year from its participating life insurance business carried on in Canada,

• (a) there shall be included the amount determined by the formula

  A × B/C

  where

  A

  is the insurer’s gross Canadian life investment income (in this section as defined in subsection 2400(1)) for the year,

  B

  is the total of

  • (i) the insurer’s mean maximum tax actuarial reserve (in this section as defined in subsection 2400(1)) for the year in respect of participating life insurance policies in Canada, and

  • (ii) 1/2 of the total of

    • (A) all amounts on deposit with the insurer as at the end of the year in respect of policies described in subparagraph (i), and

    • (B) all amounts on deposit with the insurer as at the end of the immediately preceding taxation year in respect of policies described in subparagraph (i), and

  C

  the total of all amounts, each of which is

  • (i) the insurer’s mean maximum tax actuarial reserve for the year in respect of a class of life insurance policies in Canada, or

  • (ii) 1/2 of the total of

    • (A) all amounts on deposit with the insurer as at the end of the year in respect of a class of policies described in subparagraph (i), and

    • (B) all amounts on deposit with the insurer as at the end of the immediately preceding taxation year in respect of a class of policies described in subparagraph (i);

• (b) there shall be included the insurer’s maximum tax actuarial reserve (in this section as defined in subsection 138(12) of the Act) for the immediately preceding taxation year in respect of participating life insurance policies in Canada;

• (c) there shall not be included any amount in respect of the insurer’s participating life insurance policies in Canada that was deducted under subparagraph 138(3)(a)(i) of the Act in computing its income for the immediately preceding taxation year;

• (d) subject to paragraph (a),

  • (i) there shall not be included any amount

    • (A) as a reserve that was deducted under paragraph 20(1)(l) of the Act in computing the insurer’s income for the immediately preceding taxation year, or

    • (B) that was included in determining the insurer’s gross Canadian life investment income for the year, and

  • (ii) no deduction shall be made in respect of any amount

    • (A) taken into account in determining the insurer’s gross Canadian life investment income for the year, or

    • (B) deductible under paragraph 20(1)(l) of the Act in computing the insurer’s income for the year;

• (e) there shall be deducted the insurer’s maximum tax actuarial reserve for the year in respect of participating life insurance policies in Canada;

• (f) no deduction shall be made in respect of any amount deductible under subparagraph 138(3)(a)(iii) of the Act in computing the insurer’s income for the year;

• (g) except as otherwise provided in paragraph (e), no deduction shall be made in respect of a reserve deductible under subparagraph 138(3)(a)(i) of the Act in computing the insurer’s income for the year; and

• (h) except as otherwise provided in this section, the provisions of the Act relating to the computation of income from a source shall apply.

Interpretation

310 The following definitions apply for the purposes of this section and sections 300, 301 and 304 to 309.

adjusted purchase price

adjusted purchase price, of a taxpayer’s interest in an annuity contract at any time, means, subject to subsections 300(3) and (4), the amount that would be determined at that time in respect of the interest under the definition adjusted cost basis in subsection 148(9) of the Act if the formula in that definition were read without reference to K. (prix d’achat rajusté)

amount payable

amount payable has the same meaning as in subsection 138(12) of the Act. (montant payable)

benefit on death

benefit on death has the same meaning as in subsection 1401(3). (prestation de décès)

cash surrender value

cash surrender value has the same meaning as in subsection 148(9) of the Act. (valeur de rachat)

coverage

coverage, under a life insurance policy,

• (a) for the purposes of section 306, means all life insurance (other than a fund value benefit) under the policy in respect of a specific life, or two or more specific lives jointly insured; and

• (b) for the purposes of sections 307 and 308, has the same meaning as in subsection 1401(3). (protection)

endowment date

endowment date, of an exemption test policy, means

• (a) where the exemption test policy is issued in respect of a life insurance policy issued before 2017, the later of

  • (i) 10 years after the date of issue of the life insurance policy, and

  • (ii) the first policy anniversary that is on or after the day on which the individual whose life is insured under the life insurance policy would, if the individual survived, attain the age of 85 years, as defined under the terms of the policy; and

• (b) where the exemption test policy is issued in respect of a coverage under a life insurance policy issued after 2016,

  • (i) if two or more lives are jointly insured under the coverage, the date that would be determined under subparagraph (ii) using the equivalent single age, determined on the coverage’s date of issue and in accordance with accepted actuarial principles and practices, that reasonably approximates the mortality rates of those lives, and

  • (ii) in any other case, the later of

    • (A) the earlier of

      • (I) 15 years after the date of issue of the exemption test policy, and

      • (II) the first policy anniversary that is on or after the day on which the individual whose life is insured under the coverage would, if the individual survived, attain the age of 105 years, as defined under the terms of the policy, and

    • (B) the first policy anniversary that is on or after the day on which the individual whose life is insured under the coverage would, if the individual survived, attain the age of 90 years, as defined under the terms of the policy. (date d’échéance)

fund value benefit

fund value benefit has the same meaning as in subsection 1401(3). (bénéfice au titre de la valeur du fonds)

fund value of a coverage

fund value of a coverage has the same meaning as in subsection 1401(3). (valeur du fonds d’une protection)

pay period

pay period, of an exemption test policy, means

• (a) where the exemption test policy is issued in respect of a life insurance policy issued before 2017,

  • (i) if on the date of issue of the exemption test policy, the individual whose life is insured has attained the age of 66 years, as defined under the terms of the policy, but not the age of 75 years, as defined under the terms of the policy, the period that starts on that date and that ends after the number of years obtained when the number of years by which the age of the individual exceeds 65 years, as defined under the terms of the policy, is subtracted from 20,

  • (ii) if on the date of issue of the exemption test policy, the individual whose life is insured has attained the age of 75 years, as defined under the terms of the policy, the 10-year period that starts on that date, and

  • (iii) in any other case, the 20-year period that starts on the date of issue of the exemption test policy; and

• (b) where the exemption test policy is issued in respect of a coverage under a life insurance policy issued after 2016,

  • (i) subject to subparagraph (ii), if the individual whose life is insured under the coverage would, if the individual survived, attain the age of 105 years, as defined under the terms of the policy, within the eight-year period that starts on the date of issue of the exemption test policy, the period that starts on that date and that ends on the first policy anniversary that is on or after the day on which the individual would, if the individual survived, attain the age of 105 years, as defined under the terms of the policy,

  • (ii) if two or more lives are jointly insured under the coverage and an individual of an age equal to the equivalent single age on the date of the issue of the coverage would, if the individual survived, attain the age of 105 years, as defined under the terms of the policy, within the eight-year period that starts on the date of issue of the exemption test policy, the period that starts on that date and that ends on the first policy anniversary that is on or after the day on which the individual would, if the individual survived, attain the age of 105 years, as defined under the terms of the policy, and

  • (iii) in any other case, the eight-year period that starts on the date of issue of the exemption test policy. (période de paiement)

policy anniversary

policy anniversary includes, in the case of a life insurance policy that is in existence throughout a calendar year and that would not otherwise have a policy anniversary for the calendar year, the end of the calendar year. (anniversaire de la police)

policy loan

policy loan has the same meaning as in subsection 148(9) of the Act. (avance sur police)

proceeds of the disposition

proceeds of the disposition has the same meaning as in subsection 148(9) of the Act. (produit de la disposition)

tax anniversary date

tax anniversary date, in relation to an annuity contract, means the second anniversary date of the contract to occur after October 22, 1968. (jour anniversaire d’imposition)

PART IVTaxable Income Earned in a Province by a Corporation

Interpretation

• 400 (1) In applying the definition taxable income earned in the year in a province in subsection 124(4) of the Act for a corporation’s taxation year

  • (a) the prescribed rules referred to in that definition are the rules in this Part; and

  • (b) the amount determined under those prescribed rules means the total of all amounts each of which is the taxable income of the corporation earned in the taxation year in a particular province as determined under this Part.

• (1.1) [Repealed, 2013, c. 33, s. 32]

• (2) For the purposes of this Part, permanent establishment in respect of a corporation means a fixed place of business of the corporation, including an office, a branch, a mine, an oil well, a farm, a timberland, a factory, a workshop or a warehouse, and

  • (a) where the corporation does not have any fixed place of business it means the principal place in which the corporation’s business is conducted;

  • (b) where a corporation carries on business through an employee or agent, established in a particular place, who has general authority to contract for his employer or principal or who has a stock of merchandise owned by his employer or principal from which he regularly fills orders which he receives, the corporation shall be deemed to have a permanent establishment in that place;

  • (c) an insurance corporation is deemed to have a permanent establishment in each province and country in which the corporation is registered or licensed to do business;

  • (d) where a corporation, otherwise having a permanent establishment in Canada, owns land in a province, such land shall be deemed to be a permanent establishment;

  • (e) where a corporation uses substantial machinery or equipment in a particular place at any time in a taxation year it shall be deemed to have a permanent establishment in that place;

  • (e.1) if, but for this paragraph, a corporation would not have a permanent establishment, the corporation is deemed to have a permanent establishment at the place designated in its incorporating documents or bylaws as its head office or registered office;

  • (f) the fact that a corporation has business dealings through a commission agent, broker or other independent agent or maintains an office solely for the purchase of merchandise shall not of itself be held to mean that the corporation has a permanent establishment; and

  • (g) the fact that a corporation has a subsidiary controlled corporation in a place or a subsidiary controlled corporation engaged in trade or business in a place shall not of itself be held to mean that the corporation is operating a permanent establishment in that place.

Computation of Taxable Income

401 This Part applies to determine the amount of taxable income of a corporation earned in a taxation year in a particular province.

General Rules

• 402 (1) Where, in a taxation year, a corporation had a permanent establishment in a particular province and had no permanent establishment outside that province, the whole of its taxable income for the year shall be deemed to have been earned therein.

• (2) Where, in a taxation year, a corporation had no permanent establishment in a particular province, no part of its taxable income for the year shall be deemed to have been earned therein.

• (3) Except as otherwise provided, where, in a taxation year, a corporation had a permanent establishment in a province and a permanent establishment outside that province, the amount of its taxable income that shall be deemed to have been earned in the year in the province is

  • (a) in any case other than a case specified in paragraph (b) or (c), 1/2 the aggregate of

    • (i) that proportion of its taxable income for the year that the gross revenue for the year reasonably attributable to the permanent establishment in the province is of its total gross revenue for the year, and

    • (ii) that proportion of its taxable income for the year that the aggregate of the salaries and wages paid in the year by the corporation to employees of the permanent establishment in the province is of the aggregate of all salaries and wages paid in the year by the corporation;

  • (b) in any case where the gross revenue for the year of the corporation is nil, that proportion of its taxable income for the year that the aggregate of the salaries and wages paid in the year by the corporation to employees of the permanent establishment in the province is of the aggregate of all salaries and wages paid in the year by the corporation; and

  • (c) in any case where the aggregate of the salaries and wages paid in the year by the corporation is nil, that proportion of its taxable income for the year that the gross revenue for the year reasonably attributable to the permanent establishment in the province is of its total gross revenue for the year.

• (4) For the purpose of determining the gross revenue for the year reasonably attributable to a permanent establishment in a province or country other than Canada, within the meaning of subsection (3), the following rules shall apply:

  • (a) where the destination of a shipment of merchandise to a customer to whom the merchandise is sold is in the particular province or country, the gross revenue derived therefrom shall be attributable to the permanent establishment in the province or country;

  • (b) except as provided in paragraph (c), where the destination of a shipment of merchandise to a customer to whom the merchandise is sold is in a province or country other than Canada in which the taxpayer has no permanent establishment, if the person negotiating the sale may reasonably be regarded as being attached to the permanent establishment in the particular province or country, the gross revenue derived therefrom shall be attributable to that permanent establishment;

  • (c) where the destination of a shipment of merchandise to a customer to whom the merchandise is sold is in a country other than Canada in which the taxpayer has no permanent establishment,

    • (i) if the merchandise was produced or manufactured or produced and manufactured, entirely in the particular province by the taxpayer, the gross revenue derived therefrom shall be attributable to the permanent establishment in the province, or

    • (ii) if the merchandise was produced or manufactured, or produced and manufactured, partly in the particular province and partly in another place by the taxpayer, the gross revenue derived therefrom attributable to the permanent establishment in the province shall be that proportion thereof that the salaries and wages paid in the year to employees of the permanent establishment in the province where the merchandise was partly produced or manufactured (or partly produced and manufactured) is of the aggregate of the salaries and wages paid in the year to employees of the permanent establishments where the merchandise was produced or manufactured (or produced and manufactured);

  • (d) where a customer to whom merchandise is sold instructs that shipment be made to some other person and the customer’s office with which the sale was negotiated is located in the particular province or country, the gross revenue derived therefrom shall be attributable to the permanent establishment in the province or country;

  • (e) except as provided in paragraph (f), where a customer to whom merchandise is sold instructs that shipment be made to some other person and the customer’s office with which the sale was negotiated is located in a province or country other than Canada in which the taxpayer has no permanent establishment, if the person negotiating the sale may reasonably be regarded as being attached to the permanent establishment in the particular province or country, the gross revenue derived therefrom shall be attributable to that permanent establishment;

  • (f) where a customer to whom merchandise is sold instructs that shipment be made to some other person and the customer’s office with which the sale was negotiated is located in a country other than Canada in which the taxpayer has no permanent establishment,

    • (i) if the merchandise was produced or manufactured, or produced and manufactured, entirely in the particular province by the taxpayer, the gross revenue derived therefrom shall be attributable to the permanent establishment in the province, or

    • (ii) if the merchandise was produced or manufactured, or produced and manufactured, partly in the particular province and partly in another place by the taxpayer, the gross revenue derived therefrom attributable to the permanent establishment in the province shall be that proportion thereof that the salaries and wages paid in the year to employees of the permanent establishment in the province where the merchandise was partly produced or manufactured (or partly produced and manufactured) is of the aggregate of the salaries and wages paid in the year to employees of the permanent establishments where the merchandise was produced or manufactured (or produced and manufactured);

  • (g) where gross revenue is derived from services rendered in the particular province or country, the gross revenue shall be attributable to the permanent establishment in the province or country;

  • (h) where gross revenue is derived from services rendered in a province or country other than Canada in which the taxpayer has no permanent establishment, if the person negotiating the contract may reasonably be regarded as being attached to the permanent establishment of the taxpayer in the particular province or country, the gross revenue shall be attributable to that permanent establishment;

  • (i) where standing timber or the right to cut standing timber is sold and the timber limit on which the timber is standing is in the particular province or country, the gross revenue from such sale shall be attributable to the permanent establishment of the taxpayer in the province or country; and

  • (j) gross revenue which arises from leasing land owned by the taxpayer in a province and which is included in computing its income under Part I of the Act shall be attributable to the permanent establishment, if any, of the taxpayer in the province where the land is situated.

• (4.1) For the purposes of subsections (3) and (4), where, in a taxation year,

  • (a) the destination of a shipment of merchandise to a customer to whom the merchandise is sold by a corporation is in a country other than Canada or the customer to whom merchandise is sold by a corporation instructs that the shipment of merchandise be made by the corporation to another person and the customer’s office with which the sale was negotiated is located in a country other than Canada,

  • (b) the corporation has a permanent establishment in the other country, and

  • (c) the corporation is not subject to taxation on its income under the laws of the other country, or its gross revenue derived from the sale is not included in computing the income or profit or other base for income or profits taxation by the other country, because of

    • (i) the provisions of any taxing statute of the other country, or

    • (ii) the operation of any tax treaty or convention between Canada and the other country,

  the following rules apply:

  • (d) with respect to the gross revenue derived from the sale,

    • (i) paragraphs (4)(a) and (d) do not apply,

    • (ii) that portion of paragraph (4)(c) preceding subparagraph (i) thereof shall be read as follows:

      • “(c) where the destination of a shipment of merchandise to a customer to whom the merchandise is sold is in a country other than Canada,” and

    • (iii) that portion of paragraph (4)(f) preceding subparagraph (i) thereof shall be read as follows:

      • “(f) where a customer to whom the merchandise is sold instructs that shipment be made to some other person and the customer’s office with which the sale was negotiated is located in a country other than Canada,”; and

  • (e) for the purposes of subparagraph (3)(a)(ii), paragraph (3)(b) and subparagraphs (4)(c)(ii) and (f)(ii), salaries and wages paid in the year to employees of any permanent establishment of the corporation located in that other country” shall be deemed to be nil.

• (5) For the purposes of subsection (3), “gross revenue” does not include interest on bonds, debentures or mortgages, dividends on shares of capital stock, or rentals or royalties from property that is not used in connection with the principal business operations of the corporation.

• (6) For the purposes of subsection (3), where part of the corporation’s operations were conducted in partnership with one or more other persons

  • (a) the corporation’s gross revenue for the year, and

  • (b) the salaries and wages paid in the year by the corporation,

  shall include, in respect of those operations, only that proportion of

  • (c) the total gross revenue of the partnership for its fiscal period ending in or coinciding with the year, and

  • (d) the total salaries and wages paid by the partnership in its fiscal period ending in or coinciding with the year,

  respectively, that

  • (e) the corporation’s share of the income or loss of the partnership for the fiscal period ending in or coinciding with the year,

  is of

  • (f) the total income or loss of the partnership for the fiscal period ending in or coinciding with the year.

• (7) Where a corporation pays a fee to another person under an agreement pursuant to which that other person or employees of that other person perform services for the corporation that would normally be performed by employees of the corporation, the fee so paid shall be deemed to be salary paid in the year by the corporation and that part of the fee that may reasonably be regarded as payment in respect of services rendered at a particular permanent establishment of the corporation shall be deemed to be salary paid to an employee of that permanent establishment.

• (8) For the purposes of subsection (7), a fee does not include a commission paid to a person who is not an employee of the corporation.