Government of Canada / Gouvernement du Canada
Symbol of the Government of Canada

Search

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

Full Document:  

Regulations are current to 2023-01-25 and last amended on 2023-01-01. Previous Versions

PART XIVInsurance Business Policy Reserves (continued)

DIVISION 3Special Rules

Non-Life and Life Insurance Businesses

 Any amount determined under

  • (a) section 1401 shall be determined net of relevant reinsurance recoverable amounts; and

  • (b) section 1400 or 1401 shall be determined 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/97-505, s. 1
  • SOR/99-269, s. 5
  • 2010, c. 25, s. 78
  • 2022, c. 19, s. 79

 For greater certainty, any amount referred to or determined under section 1400 may be equal to, or less than, nil.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • SOR/99-269, s. 5
  •  (1) Subject to subsections (2) and (3), for the purposes of applying paragraph 1401(1)(c) in respect of a life insurance policy issued before 2017 or an annuity contract, a modified net premium and an amount determined by paragraph 1401(1)(c) are to be computed

    • (a) in the case of a lapse-supported policy effected after 1990, based on rates of interest, mortality and policy lapse only, and

    • (b) in any other case, based on rates of interest and mortality only,

    using

    • (c) in respect of the modified net premiums and benefits (other than a benefit described in paragraph (d)) of a participating life insurance policy (other than an annuity contract) under the terms of which the policyholder is entitled to receive a specified amount in respect of the policy’s cash surrender value, the rates used by the insurer when the policy was issued in computing the cash surrender values of the policy;

    • (d) in respect of any benefit provided

      • (i) in lieu of a cash settlement on the termination or maturity of a policy, or

      • (ii) in satisfaction of a dividend on a policy,

    the rates used by the insurer in determining the amount of such benefit; and

    • (e) in respect of all or part of any other policy, the rates used by the insurer in determining the premiums for the policy.

  • (2) For the purposes of subsection (1), where a rate of mortality or other probability used by an insurer in determining the premium for a policy is not reasonable in the circumstances, the Minister on the advice of the Superintendent of Insurance for Canada may make such revision to the rate as is reasonable in the circumstances and the revised rate shall be deemed to have been used by the insurer in determining the premium.

  • (3) For the purposes of subsection (1), where the present value of the premiums for a policy as at the date of issue of the policy is less than the aggregate of

    • (a) the present value, at that date, of the benefits provided for by the policy, and

    • (b) the present value, at that date, of all outlays and expenses made or incurred by the insurer or outlays and expenses that the insurer reasonably estimates it will make or incur in respect of the policy (except outlays and expenses to maintain the policy after all premiums under the policy have been paid and for which explicit provision has not been made in calculating the premiums) and such part of any other outlays and expenses made or incurred by the insurer that may reasonably be regarded as applicable thereto,

    an increased rate of interest shall be determined by multiplying the rate of interest used in determining the premiums by a constant factor so that when the increased rate of interest is used,

    • (c) the present value of the premiums at the date of issue of the policy

    shall equal

    • (d) the aggregate of the present values of the benefits, outlays and expenses referred to in paragraphs (a) and (b),

    and the increased rate of interest shall be deemed to have been used by the insurer in determining the premiums for policy.

  • (4) For the purposes of subsection (3), a “present value” referred to in that subsection shall be computed by using the rates of mortality and other probabilities used by the insurer in determining its premiums, after mixing any revision required by subsection (2).

  • (5) For the purposes of subsection (1), where a record of the rate of interest or mortality used by an insurer in determining the premiums for a policy is not available,

    • (a) the insurer may, if the policy was issued before 1978, make a reasonable estimate of the rate; and

    • (b) the Minister, on the advice of the Superintendant of Insurance for Canada, may

      • (i) if the policy was issued before 1978 and the insurer has not made the estimate referred to in paragraph (a), or

      • (ii) if the policy was issued after 1977,

      make a reasonable estimate of the rate.

  • (6) Notwithstanding paragraph 1401(1)(c), a life insurer in computing its income for a taxation year may, in respect of any class of life insurance policies issued before its 1988 taxation year, other than policies referred to in paragraph 1401(1)(a) or (b), use a method of approximation to convert the reserve in respect of such policies reported by the insurer in its annual report to the relevant authority for the year to an amount that is a reasonable estimate of the amount that would otherwise be determined for such policies under paragraph 1401(1)(c), provided that that method of approximation is acceptable to the Minister on the advice of the relevant authority.

  • (7) For the purpose of subsection (1) and notwithstanding any other provision of this section, where

    • (a) an individual annuity contract was issued prior to 1969 by a life insurer, or

    • (b) a benefit was purchased prior to 1969 under a group annuity contract issued by a life insurer, and

    the contract

    • (c) is a policy in respect of which the provisions of paragraph 1401(1)(c) as it read in its application to the insurer’s 1977 taxation year applied,

    the rates of interest and mortality and by the insurer in computing its reserve for the policy under that paragraph for its 1977 taxation year shall be used by the insurer in respect of that policy.

  • (8) Subsections (9) and (10) apply to an insurer if

    • (a) in a taxation year of the insurer, there has been a disposition to the insurer by another person with whom the insurer was dealing at arm’s length in respect of which subsection 138(11.92) of the Act applied;

    • (b) as a result of the disposition, the insurer assumed obligations under life insurance policies (in this subsection and subsections (9) and (10) referred to as the “transferred policies”) in respect of which an amount may be claimed by the insurer as a reserve under paragraph 1401(1)(c) for the taxation year;

    • (c) the amount (referred to in this subsection and subsections (9) and (10) as the “reserve deficiency”) determined by the following formula is a positive amount:

      (A – B) – C

      where

      A
      is the total of all amounts received or receivable by the insurer from the other person in respect of the transferred policies,
      B
      is the total of all amounts paid or payable by the insurer to the other person in respect of commissions in respect of the amounts referred to in the description of A, and
      C
      is the total of the maximum amounts that may be claimed by the insurer as a reserve under 1401(1)(c) (determined without reference to this subsection) in respect of the transferred policies for the taxation year; and
    • (d) the reserve deficiency can reasonably be attributed to the fact that the rates of interest, mortality or policy lapse used by the issuer of the transferred policies in determining the cash surrender values or premiums under the transferred policies are no longer reasonable in the circumstances.

  • (9) If this subsection applies to an insurer in respect of transferred policies for which there was a reserve deficiency, then, for the purposes of subsection (1) and subject to subsection (10),

    • (a) the insurer may make such revisions to the rates of interest, mortality or policy lapse used by the issuer of the transferred policies to eliminate all or any part of the reserve deficiency; and

    • (b) the revised rates are deemed to have been used by the issuer of the transferred policies in determining the cash surrender value or premiums under the policies.

  • (10) If, under subsection (9), an insurer has revised the rates of interest, mortality or policy lapse used by the issuer of transferred policies, the Minister may, for the purposes of subsection (1) and paragraph (9)(b), make further revisions to the revised rates to the extent that the insurer’s revisions to those rates are not reasonable in the circumstances.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • SOR/79-425, s. 1
  • SOR/80-419, s. 2
  • SOR/80-618, s. 4(E)
  • SOR/90-661, s. 4
  • SOR/94-415, s. 6
  • SOR/94-686, ss. 14(F), 56(F)
  • 2013, c. 34, s. 386
  • 2014, c. 39, s. 87

DIVISION 4Life Insurance Policy Reserves

  •  (1) For the purpose of subparagraph 138(3)(a)(i) of the Act, there may be deducted, in computing a life insurer’s income from carrying on its life insurance business in Canada for a taxation year in respect of its groups of life insurance contracts in Canada at the end of the year, the amount the insurer claims, not exceeding

    • (a) the amount determined under subsection (3) in respect of the insurer for the year, where that amount is greater than nil; and

    • (b) nil, in any other case.

  • (2) For the purpose of paragraph 138(4)(b) of the Act, the amount prescribed in respect of an insurer for a taxation year, in respect of its groups of life insurance contracts in Canada at the end of the year, is

    • (a) the absolute value of the amount determined under subsection (3) in respect of the insurer for the year, where that amount is less than nil; and

    • (b) nil, in any other case.

  • (3) For the purposes of paragraphs (1)(a) and (2)(a), the amount determined under this subsection in respect of an insurer for a taxation year, for groups of life insurance contracts in Canada of the insurer at the end of the year, is the positive or negative amount determined by the formula

    A + B − (0.9 × C) − (D − (0.9 × E))

    where

    A
    is the total of all amounts each of which is the liability for remaining coverage for a group of life insurance contracts in Canada of the insurer at the end of the year;
    B
    is the total of all amounts each of which is the liability for incurred claims for a group of life insurance contracts in Canada of the insurer at the end of the year;
    C
    is the total of all amounts each of which is the contractual service margin for a group of life insurance contracts in Canada (other than a group of segregated fund policies) of the insurer at the end of the year;
    D
    is the total of all amounts each of which is an amount, in respect of a group of reinsurance contracts held by the insurer at the end of the year, that is
    • (a) if no portion of the reinsurance contract held amount for the group is in respect of the reinsurance of a risk under an insurance policy other than a life insurance policy in Canada, the reinsurance contract held amount for the group, and

    • (b) in any other case, the amount that would be the reinsurance contract held amount for the group if the amount were determined excluding any portion that is in respect of the reinsurance of a risk under an insurance policy other than a life insurance policy in Canada; and

    E
    is the total of all amounts each of which is an amount, in respect of a group of reinsurance contracts held by the insurer at the end of the year, that is
    • (a) if no portion of the contractual service margin for the group is in respect of the reinsurance of a risk under an insurance policy other than a life insurance policy in Canada that is not a segregated fund policy, the contractual service margin for the group, and

    • (b) in any other case, the amount that would be the contractual service margin for the group if the contractual service margin were determined excluding any portion that is in respect of the reinsurance of a risk under insurance policies other than a life insurance policy in Canada that is not a segregated fund policy.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  •  SOR/79-425, s. 1
  • SOR/80-419, s. 3
  • SOR/83-865, s. 6
  • SOR/84-948, s. 9
  • SOR/88-165, ss. 9, 30(F)
  • SOR/90-661, s. 5
  • SOR/92-51, s. 8
  • SOR/93-564, s. 1
  • SOR/94-415, s. 7
  • SOR/94-686, ss. 55(F), 56(F), 79(F)
  • SOR/96-443, s. 2
  • SOR/99-269, s. 6
  • SOR/2002-123, ss. 3, 4
  • 2009, c. 2, s. 100
  • 2022, c. 19, s. 80

 [Repealed, 2022, c. 19, s. 81]

 Any amount determined under section 1404 shall be determined

  • (a) [Repealed, 2022, c. 19, s. 82]

  • (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
  • 2022, c. 19, s. 82

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

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • SOR/99-269, s. 6
  • 2022, c. 19, s. 83

DIVISION 5Interpretation

Insurance Businesses

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

    accident and sickness insurance

    accident and sickness insurance has the same meaning as in the schedule to the Insurance Companies Act. (assurance accidents et maladie)

    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[Repealed, 2022, c. 19, s. 84]

    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, has the same meaning as in subsection 138(12) of the Act. (marge sur services contractuels)

    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[Repealed, 2022, c. 19, s. 84]

    general amending provision

    general amending provision[Repealed, 2022, c. 19, s. 84]

    group of insurance contracts

    group of insurance contracts of an insurer has the same meaning as in subsection 138(12) of the Act. (groupe de contrats d’assurance)

    group of life insurance contracts

    group of life insurance contracts of an insurer has the same meaning as in subsection 138(12) of the Act. (groupe de contrats d’assurance-vie)

    group of life insurance contracts in Canada

    group of life insurance contracts in Canada of an insurer has the same meaning as in subsection 138(12) of the Act. (groupe de contrats d’assurance-vie au Canada)

    group of reinsurance contracts

    group of reinsurance contracts held by an insurer has the same meaning as in subsection 138(12) of the Act. (groupe de contrats de réassurance)

    group of segregated fund policies

    group of segregated fund policies of an insurer has the same meaning as in subsection 138(12) of the Act. (groupe de polices à fonds réservé)

    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)

    liability for incurred claims

    liability for incurred claims for a group of insurance contracts of an insurer at the end of a taxation year has the same meaning as in subsection 138(12) of the Act. (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 has the same meaning as in subsection 138(12) of the Act. (passif au titre de la couverture restante)

    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)

    mortgage insurance

    mortgage insurance has the same meaning as in the schedule to the Insurance Companies Act. (assurance hypothécaire)

    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[Repealed, 2022, c. 19, s. 84]

    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[Repealed, 2022, c. 19, s. 84]

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

    post-1995 non-cancellable or guaranteed renewable accident and sickness policy[Repealed, 2022, c. 19, s. 84]

    pre-1996 life insurance policy

    pre-1996 life insurance policy[Repealed, 2022, c. 19, s. 84]

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

    pre-1996 non-cancellable or guaranteed renewable accident and sickness policy[Repealed, 2022, c. 19, s. 84]

    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[Repealed, 2022, c. 19, s. 84]

    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 has the same meaning as in subsection 138(12) of the Act. (montant au titre des contrats de réassurance détenus)

    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 has the same meaning as in subsection 138(12) of the Act. (autorité compétente)

    reported reserve

    reported reserve of an insurer at the end of a taxation year in respect of a policy that insures an earthquake risk in Canada, or a fidelity risk, a nuclear risk or a risk related to a financial loss of a lender on a loan made on the security of real property, means the amount equal to the positive or negative amount of the reserve reported as at the end of the year. (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)

    title insurance

    title insurance has the same meaning as in the schedule to the Insurance Companies Act. (assurance de titres)

  • (2) [Repealed, 2022, c. 19, s. 84]

  • (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) [Repealed, 2022, c. 19, s. 84]

  • (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) [Repealed, 2022, c. 19, s. 84]

  • (8) [Repealed, 2022, c. 19, s. 84]

  • [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
  • 2022, c. 19, s. 84
 
Date modified: