Income Tax Act — I-3.3 148
vision of this section, where (a) an interest of a policyholder in a life insurance policy (other than a policy that is, or is issued under, a plan or contract referred to in any of paragraphs 148(1)(a) to 148(1)(e)) is transferred to (i) the policyholder’s spouse or common-law partner, or (ii) a former spouse or common-law partner of the policyholder in settlement of rights arising out of their marriage or common-law partnership, and (iii) [Repealed, 1994, c. 7, Sch. VIII, s. 87(3)] (b) both the policyholder and the transferee are resident in Canada at the time of the transfer, unless an election is made in the policyholder’s return of income under this Part for the taxation year in which the interest was transferred to have this subsection not apply, the interest shall be deemed to have been disposed of by the policyholder for proceeds of the disposition equal to the adjusted cost basis to the policyholder of the interest immediately before the transfer and to have been acquired by the transferee at a cost equal to those proceeds. Transfer to spouse at death (8.2) Notwithstanding any other provision of this section, where, as a consequence of the death of a policyholder who was resident in Canada immediately before the policyholder’s death, an interest of the policyholder in a life insurance policy (other than a policy that is or is issued under a plan or contract referred to in any of paragraphs 148(1)(a) to 148(1)(e)) is transferred or distributed to the policyholder’s spouse or common-law partner who was resident in Canada immediately before the death, unless an election is made in the policyholder’s return of income under this Part for the taxation year in which the policyholder died to have this subsection not apply, the interest shall be deemed to have been disposed of by the policyholder immediately before the death for proceeds of the disposition equal to the adjusted cost basis to the policyholder of the interest immediately before the transfer and to have been acquired by the spouse or common-law partner at a cost equal to those proceeds. Definitions (9) In this section and paragraph 56(1)(d.1) of the Income Tax Act , chapter 148 of the Revised Statutes of Canada, 1952, adjusted cost basis , at any time to a policyholder of the policyholder’s interest in a life insurance policy, means the amount determined by the formula (A + B + C + D + E + F + G + G.1) – (H + I + J + K + L + M + N + O) where A is the total of all amounts each of which is the cost of an interest in the policy acquired by the policyholder before that time but not including an amount referred to in the description of B or E, B is the total of all amounts each of which is an amount paid before that time by or on behalf of the policyholder in respect of a premium under the policy, other than amounts referred to in clause 148(2)(a)(ii)(B), in subparagraph (iii) of the description of C in paragraph (a) of the definition proceeds of the disposition or in subparagraph (b)(i) of that definition, C is the total of all amounts each of which is an amount in respect of the disposition of an interest in the policy before that time that was required to be included in computing the policyholder’s income or taxable income earned in Canada for a taxation year, D is the total of all amounts each of which is an amount in respect of the policyholder’s interest in the policy that was included by virtue of subsection 12(3) or section 12.2 or of paragraph 56(1)(d.1) of the Income Tax Act , chapter 148 of the Revised Statutes of Canada, 1952, in computing the policyholder’s income for any taxation year ending before that time or the portion of an amount paid to the policyholder in respect of the policyholder’s interest in the policy on which tax was imposed by virtue of paragraph 212(1)(o) before that time, E is the total of all amounts each of which is an amount that is in respect of the repayment, before that time and after March 31, 1978, of a policy loan and that does