Income Tax Regulations

308 (1) For the purposes of subparagraph 20(1)(e.2)(ii) and paragraph (a) of the description of L in the definition adjusted cost basis in subsection 148(9) of the Act, the net cost of pure insurance for a year in respect of a taxpayer’s interest in a life insurance policy is the product obtained when the probability, computed on the basis of the rates of mortality under the 1969-75 mortality tables of the Canadian Institute of Actuaries published in Volume XVI of the Proceedings of the Canadian Institute of Actuaries or on the basis described in subsection (1.1), that a person who has the same relevant characteristics as the person whose life is insured will die in the year is multiplied by the amount by which

• (a) the benefit on death in respect of the taxpayer’s interest at the end of the year

exceeds

• (b) the accumulating fund (determined without regard to any policy loan outstanding) in respect of the taxpayer’s interest in the policy at the end of the year or the cash surrender value of such interest at the end of the year, depending on the method regularly followed by the life insurer in computing net cost of pure insurance.

(1.1) Where premiums for a particular class of life insurance policy offered by a life insurer do not depend directly on smoking or sex classification, the probability referred to in subsection (1) may be determined using rates of mortality otherwise determined provided that for each age for such class of life insurance policy, the expected value of the aggregate net cost of pure insurance, calculated using such rates of mortality, is equal to the expected value of the aggregate net cost of pure insurance, calculated using the rates of mortality under the 1969-75 mortality tables of the Canadian Institute of Actuaries published in Volume XVI of the Proceedings of the Canadian Institute of Actuaries.

(2) Subject to subsection (4), for the purposes of this section and of the description of G in the definition adjusted cost basis in subsection 148(9) of the Act, a mortality gain immediately before the end of any calendar year after 1982 in respect of a taxpayer’s interest in a life annuity contract means such reasonable amount in respect of the taxpayer’s interest in the life annuity contract at that time that the life insurer determines to be the increase to the accumulating fund in respect of the interest that occurred during that year as a consequence of the survival to the end of the year of one or more of the annuitants under the life annuity contract.

(3) Subject to subsection (4), for the purposes of this section and of paragraph (c) of the description of L in the definition adjusted cost basis in subsection 148(9) of the Act, a mortality loss immediately before a particular time after 1982 in respect of an interest in a life annuity contract disposed of immediately after that particular time as a consequence of the death of an annuitant under the life annuity contract means such reasonable amount that the life insurer determines to be the decrease, as a consequence of the death, in the accumulating fund in respect of the interest assuming that, in determining such decrease, the accumulating fund immediately after the death is determined in the manner described in subparagraph 307(1)(b)(i).

(4) In determining an amount for a year in respect of an interest in a life annuity contract under subsection (2) or (3), the expected value of the mortality gains in respect of the interest for the year shall be equal to the expected value of the mortality losses in respect of the interest for the year and the mortality rates for the year used in computing those expected values shall be those that would be relevant to the interest and that are specified under such of paragraphs 1403(1)(c), (d) and (e) as are applicable.