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

Regulations are current to 2017-11-20 and last amended on 2017-07-01. Previous Versions

 For the purpose of subparagraph 138(3)(a)(ii) of the Act, there may be deducted, in computing a life insurer’s income for a taxation year, the amount it claims as a reserve in respect of an unpaid claim received by the insurer before the end of the year under a life insurance policy in Canada, not exceeding the lesser of

  • (a) the reported reserve of the insurer at the end of the year in respect of the claim, and

  • (b) the policy liability of the insurer at the end of the year in respect of the claim.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending Acts and regulations. SOR/79-425, s. 1;
  • SOR/94-686, s. 79(F);
  • SOR/99-269, s. 6;
  • 2009, c. 2, s. 100.

 Any amount determined under section 1404 or 1405 shall be determined

  • (a) net of relevant reinsurance recoverable amounts;

  • (b) by excluding any obligation to pay a benefit under a segregated fund policy if

    • (i) the amount of the benefit varies with the fair market value of the segregated fund at the time the benefit becomes, or may become, payable, and

    • (ii) the benefit is not in respect of a guarantee given by the insurer under a segregated fund policy; and

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

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending Acts and regulations. SOR/79-425, s. 1;
  • SOR/99-269, s. 6;
  • 2010, c. 25, s. 79;
  • 2013, c. 34, s. 387.

 For greater certainty, any amount referred to in or determined under section 1404 or 1405 may be equal to, or less than, nil.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending regulations. SOR/99-269, s. 6.

DIVISION 5Interpretation

Insurance Businesses

  •  (1) The definitions in this subsection apply in this Part.

    acquisition costs

    acquisition costs[Repealed, SOR/2002-123, s. 2]

    amount payable

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

    benefit

    benefit, in respect of a policy, includes

    • (a) a policy dividend (other than a policy dividend in respect of a policy described in paragraph 1403(1)(c)) in respect of the policy to the extent that the dividend was specifically treated as a benefit by the insurer in determining a premium for the policy, and

    • (b) an expense of maintaining the policy after all premiums in respect of the policy have been paid to the extent that the expense was specifically provided for by the insurer in determining a premium for the policy,

    but does not include

    • (c) a policy loan,

    • (d) interest on funds left on deposit with the insurer under the terms of the policy, and

    • (e) any other amount under the policy that was not specifically provided for by the insurer in determining a premium for the policy. (bénéfice)

    capital tax

    capital tax means a tax imposed under Part I.3 or VI of the Act or a similar tax imposed under an Act of the legislature of a province. (impôt sur le capital)

    cash surrender value

    cash surrender value has the meaning assigned by subsection 148(9) of the Act. (valeur de rachat)

    claim liability

    claim liability of an insurer at the end of a taxation year means

    • (a) in respect of a claim reported to the insurer before that time under an insurance policy, the amount, if any, by which

      • (i) the present value at that time, computed using a rate of interest that is reasonable in the circumstances, of a reasonable estimate, determined in accordance with accepted actuarial practice, of the insurer’s future payments and claim adjustment expenses in respect of the claim

      exceeds

      • (ii) the present value at that time, computed using a rate of interest that is reasonable in the circumstances, of a reasonable estimate, determined in accordance with accepted actuarial practice, of the amounts that the insurer will recover after that time in respect of the claim because of salvage, subrogation or any other reason; and

    • (b) in respect of the possibility that there are claims under an insurance policy incurred before that time that have not been reported to the insurer before that time, the amount, if any, by which

      • (i) the present value at that time, computed using a rate of interest that is reasonable in the circumstances, of a reasonable estimate, determined in accordance with accepted actuarial practice, of the insurer’s payments and claim adjustment expenses in respect of those claims

      exceeds

      • (ii) the present value at that time, computed using a rate of interest that is reasonable in the circumstances, of a reasonable estimate, determined in accordance with accepted actuarial practice, of the amounts that the insurer will recover in respect of those claims because of salvage, subrogation or any other reason. (passif de sinistres)

    deposit accounting insurance policy

    deposit accounting insurance policy has the meaning assigned by subsection 138(12) of the Act. (police d’assurance à comptabilité de dépôt)

    extended motor vehicle warranty

    extended motor vehicle warranty means an agreement under which a person agrees to provide goods or render services in respect of the repair or maintenance of a motor vehicle manufactured by the person or a corporation related to the person where

    • (a) the agreement is in addition to a basic or limited warranty in respect of the vehicle;

    • (b) the basic or limited warranty has a term of 3 or more years, although it may expire before the end of such term on the vehicle’s odometer registering a specified number of kilometres or miles;

    • (c) more than 50% of the expenses to be incurred under the agreement are reasonably expected to be incurred after the expiry of the basic or limited warranty; and

    • (d) the person’s risk under the agreement is insured by an insurer that is subject to the supervision of a relevant authority. (garantie prolongée de véhicule à moteur)

    general amending provision

    general amending provision, of an insurance policy, means a provision of the policy that allows it to be amended with the consent of the policyholder. (disposition modificative générale)

    interest

    interest, in relation to a policy loan, has the meaning assigned by subsection 138(12) of the Act. (intérêt)

    lapse-supported policy

    lapse-supported policy means a life insurance policy that would require materially higher premiums if premiums were determined using policy lapse rates that are zero after the fifth policy year. (police fondée sur les déchéances)

    life insurance policy

    life insurance policy has the same meaning as defined in subsection 138(12) of the Act. (police d’assurance-vie)

    life insurance policy in Canada

    life insurance policy in Canada has the same meaning as defined in subsection 138(12) of the Act. (police d’assurance-vie au Canada)

    modified net premium

    modified net premium, in respect of a premium under a policy (other than a prepaid premium under a policy that cannot be refunded except on termination of the policy), means

    • (a) where all benefits (other than policy dividends) and premiums (other than the frequency of payment of premiums) in respect of the policy are determined at the date of issue of the policy, the amount determined by the formula

      A × [(B + C) / (D + E)]

      where

      A
      is the amount of the premium,
      B
      is the present value, at the date of the issue of the policy, of the benefits to be provided under the terms of the policy after the day that is one year after the date of the issue of the policy,
      C
      is the present value, at the date of the issue of the policy, of the benefits to be provided under the terms of the policy after the day that is two years after the date of the issue of the policy,
      D
      is the present value, at the date of the issue of the policy, of the premiums payable under the terms of the policy on or after the day that is one year after the date of the issue of the policy, and
      E
      is the present value, at the date of the issue of the policy, of the premiums payable under the terms of the policy on or after the day that is two years after the date of the issue of the policy,

      except that the amount determined by the formula in respect of the premium for the second year of a policy is deemed to be the amount that is 50% of the total of

      • (i) the amount that would otherwise be determined under the formula, and

      • (ii) the amount of a one-year term insurance premium (determined without regard to the frequency of payment of the premium) that would be payable under the policy; and

    • (b) in any other case, the amount that would be determined under paragraph (a) if that paragraph applied and the amount were adjusted in a manner that is reasonable in the circumstances. (prime nette modifiée)

    net premium for the policy

    net premium for the policy[Repealed, SOR/2002-123, s. 2]

    non-cancellable or guaranteed renewable accident and sickness policy

    non-cancellable or guaranteed renewable accident and sickness policy, includes a non-cancellable or guaranteed renewable accident and sickness benefit under a group policy. (police d’assurance contre les accidents et la maladie non résiliable ou à renouvellement garanti)

    participating life insurance policy

    participating life insurance policy has the meaning assigned by subsection 138(12) of the Act. (police d’assurance-vie avec participation)

    policy liability

    policy liability of an insurer at the end of the taxation year in respect of an insurance policy or a claim, possible claim or risk under an insurance policy means the positive or negative amount of the insurer’s reserve in respect of its potential liability in respect of the policy, claim, possible claim or risk at the end of the year determined in accordance with accepted actuarial practice, but without reference to projected income and capital taxes (other than the tax payable under Part XII.3 of the Act). (passif de police)

    policy loan

    policy loan has the meaning assigned by subsection 138(12) of the Act. (avance sur police)

    post-1995 life insurance policy

    post-1995 life insurance policy means a life insurance policy that is not a pre-1996 life insurance policy. (police d’assurance-vie postérieure à 1995)

    post-1995 non-cancellable or guaranteed renewable accident and sickness policy

    post-1995 non-cancellable or guaranteed renewable accident and sickness policy means a non-cancellable or guaranteed renewable accident and sickness policy that is not a pre-1996 non-cancellable or guaranteed renewable accident and sickness policy. (police d’assurance contre les accidents et la maladie non résiliable ou à renouvellement garanti postérieure à 1995)

    pre-1996 life insurance policy

    pre-1996 life insurance policy, at any time, means a life insurance policy where

    • (a) the policy was issued before 1996; and

    • (b) before that time and after 1995 there has been no change, except in accordance with the provisions (other than a general amending provision) of the policy as they existed on December 31, 1995, to

      • (i) the amount of any benefit under the policy,

      • (ii) the amount of any premium or other amount payable under the policy, or

      • (iii) the number of premium or other payments under the policy. (police d’assurance-vie antérieure à 1996)

    pre-1996 non-cancellable or guaranteed renewable accident and sickness policy

    pre-1996 non-cancellable or guaranteed renewable accident and sickness policy, at any time, means a non-cancellable or guaranteed renewable accident and sickness policy where

    • (a) the policy was issued before 1996; and

    • (b) before that time and after 1995 there has been no change, except in accordance with the provisions (other than a general amending provision) of the policy as they existed on December 31, 1995, to

      • (i) the amount of any benefit under the policy,

      • (ii) the amount of any premium or other amount payable under the policy, or

      • (iii) the number of premium or other payments under the policy. (police d’assurance contre les accidents et la maladie non résiliable ou à renouvellement garanti antérieure à 1996)

    qualified annuity

    qualified annuity means an annuity contract issued before 1982, other than a deposit administration fund policy or a policy referred to in paragraph 1403(7)(c),

    • (a) in respect of which regular periodic annuity payments have commenced;

    • (b) in respect of which a contract or certificate has been issued that provides for regular periodic annuity payments to commence within one year after the date of issue of the contract or certificate;

    • (c) that is not issued as or under a registered retirement savings plan, registered pension plan or deferred profit sharing plan and that

      • (i) does not provide for a guaranteed cash surrender value at any time, and

      • (ii) provides for regular periodic annuity payments to commence not later than the attainment of age 71 by the annuitant; or

    • (d) that is issued as or under a registered retirement savings plan, registered pension plan or deferred profit sharing plan, if the interest rate is guaranteed for at least 10 years and the plan does not provide for any participation in profits, directly or indirectly. (rente admissible)

    reinsurance commission

    reinsurance commission, in respect of a policy, means

    • (a) where the risk under the policy is fully reinsured, the amount, if any, by which

      • (i) the premium paid by the policyholder for the policy

      exceeds

      • (ii) the consideration payable by the insurer in respect of the reinsurance of the risk; and

    • (b) where the risk under the policy is not fully reinsured, the amount, if any, by which

      • (i) the portion of the premium paid by the policyholder for the policy that may reasonably be considered to be in respect of the portion of the risk that is reinsured with a particular reinsurer

      exceeds

      • (ii) the consideration payable by the insurer to the particular reinsurer in respect of the risk assumed by the reinsurer. (commission de réassurance)

    reinsurance recoverable amount

    reinsurance recoverable amount of an insurer means an amount reported as a reinsurance asset of the insurer as at the end of a taxation year in respect of an amount recoverable from a reinsurer. (somme à recouvrer au titre de la réassurance)

    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)

    reported reserve

    reported reserve of an insurer at the end of a taxation year in respect of an insurance policy or a claim, possible claim, risk, dividend, premium, refund of premiums or refund of premium deposits under an insurance policy means the amount equal to

    • (a) where the insurer is required to file an annual report with its relevant authority for a period ending coincidentally with the year, the positive or negative amount of the reserve that would be reported in that report in respect of the insurer’s potential liability under the policy if the reserve were determined without reference to projected income and capital taxes (other than the tax payable under Part XII.3 of the Act);

    • (b) where the insurer is, throughout the year, subject to the supervision of its relevant authority and paragraph (a) does not apply, the positive or negative amount of the reserve that would be reported in its financial statements for the year in respect of the insurer’s potential liability under the policy if

      • (i) those statements were prepared in accordance with generally accepted accounting principles, and

      • (ii) the reserve were determined without reference to projected income and capital taxes (other than the tax payable under Part XII.3 of the Act);

    • (c) where the insurer is the Canada Mortgage and Housing Corporation or a foreign affiliate of a taxpayer resident in Canada, the positive or negative amount of the reserve that would be reported in its financial statements for the year in respect of the insurer’s potential liability under the policy if

      • (i) those statements were prepared in accordance with generally accepted accounting principles, and

      • (ii) the reserve were determined without reference to projected income and capital taxes (other than the tax payable under Part XII.3 of the Act); and

    • (d) in any other case, nil. (provision déclarée)

    segregated fund

    segregated fund has the meaning assigned by subsection 138.1(1) of the Act. (fonds réservé)

    segregated fund policy

    segregated fund policy has the meaning assigned by subsection 138.1(1) of the Act. (police à fonds réservé)

  • (2) The definition group term life insurance policy in subsection 248(1) of the Act does not apply to this Part.

  • (3) For the purpose of the formula referred to in the definition modified net premium in subsection (1), it may be assumed that premiums are payable annually in advance.

  • (4) For the purposes of this Part,

    • (a) a reference to a “premium paid by the policyholder” shall, depending on the method regularly followed by the insurer in computing its income, be read as a reference to a “premium paid or payable by the policyholder”; and

    • (b) in determining the premium paid by a policyholder for a policy, there may be deducted by the insurer the portion, if any, of the premium that

      • (i) can reasonably be considered, at the time the policy is issued, to be a deposit that, pursuant to the terms of the policy or the by-laws of the insurer, will be returned to the policyholder, or credited to the account of the policyholder, by the insurer on the termination of the policy, and

      • (ii) was not otherwise deducted under section 140 of the Act.

  • (5) For the purposes of this Part, any rider that is attached to a life insurance policy and that provides for additional life insurance or for an annuity is a separate life insurance policy.

  • (6) For the purposes of this Part, any rider that is attached to a policy and that provides for additional non-cancellable or guaranteed renewable accident and sickness insurance, as the case may be, is a separate non-cancellable or guaranteed renewable accident and sickness policy.

  • (7) For the purposes of the definitions pre-1996 life insurance policy and pre-1996 non-cancellable or guaranteed renewable accident and sickness policy in subsection (1), a change in the amount of any benefit or in the amount or number of any premiums or other amounts payable under a policy is deemed not to have occurred where the change results from

    • (a) a change in an underwriting class;

    • (b) a change in frequency of premium payments within a year that does not alter the present value, at the beginning of the year, of the total premiums to be paid under the policy in the year;

    • (c) the deletion of a rider;

    • (d) the correction of erroneous information;

    • (e) the reinstatement of the policy after its lapse, if the reinstatement occurs not later than 60 days after the end of the calendar year in which the lapse occurred;

    • (f) the redating of the policy for policy loan indebtedness; or

    • (g) a change in the amount of a benefit under the policy that is granted by the insurer on a class basis, where

      • (i) no consideration was payable by the policyholder or any other person for the change, and

      • (ii) the change was not made because of the terms or conditions of the policy or any other policy or contract to which the insurer is a party.

  • (8) A reference in this Part to an amount or item reported as an asset or a liability of an insurer as at the end of a taxation year means

    • (a) if reporting by the insurer to the insurer’s relevant authority is required at the end of the year, an amount or item that is reported, as at the end of the year, as an asset or a liability in the insurer’s non-consolidated balance sheet accepted by the insurer’s relevant authority; and

    • (b) in any other case, an amount or item that is reported as an asset or a liability in a non-consolidated balance sheet 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.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending Acts and regulations. SOR/99-269, s. 6;
  • SOR/2002-123, ss. 2, 3;
  • 2009, c. 2, s. 101;
  • 2010, c. 25, s. 80.
 
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