Income Tax Regulations — 1403
1403 (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,